Bequests to Your Favorite Charity (Part 2)Example - (Arizona Elks Major Projects)
to (501 C 3) charity are the most popular type of planned gift. A donor
may retain assets during life and then leave a bequest to a charity.
A bequest to a charity should include the full legal name, city and state of the charity:
Arizona Elks Major Projects Inc. Arizona Elks Major Projects Inc.
4545 East 5th Street P.O. Box 12668
Tucson Arizona 85711-7003 Tucson, Arizona 85732-0556
attorney who drafts your will should be certain that he or she has
correctly identified the intended charity by legal name, city and state.
IRA or 401(k)
your estate includes an IRA or 401(k) in addition to your home, CDs and
other securities, you might consider a beneficiary designation to
From your perspective, your IRA is a very good asset.
For most IRAs, other than a Roth IRA, the plan is funded with pretax
dollars. It also grows tax free. However, you or your beneficiary will
pay income tax when you withdraw the funds.
For you, the IRA is
an excellent plan. Everyone should have a qualified plan such as an IRA,
401(k), or other retirement plan. Your IRA is funded with pre-tax
dollars and grows tax free. This is an excellent plan for your future
If you pass away with a fairly substantial balance in
your regular IRA or 401(k), that could be an excellent opportunity to
make a charitable bequest. For the vast majority of Americans who have
an estate that is not subject to estate tax, the only tax paid by the
family will be income tax. Your home, CDs, stocks and bonds can be
transferred to children without tax.
However, if you give family
members your IRA, it comes with a large "you-owe-the-IRS" tax bill
attached. When children or other heirs receive your IRA, they pay tax at
their highest rate on their IRA distributions. This can be a sum of
many tens of thousands of dollars.
Therefore, if you are planning to leave assets to charity, the transfer of an IRA may be a good plan.
Joe is an IRA owner and was speaking with his tax advisor Harry about the options for leaving a bequest to his favorite charity.
"Harry, I've been thinking about leaving a bequest to charity. You
know, I've always thought that I would leave most of my estate to my two
nephews and three nieces. But as I've thought about it, I have
supported my favorite charity for many years and would like to do
something for them."
Harry: "Well, you have a home, some CDs,
some stocks and bonds and your IRA. Right now, the other assets are
worth about $600,000 in total and your IRA is $200,000. How much were
you thinking of leaving to the charity?"
Joe: "I thought I would give them about one-fourth of the estate and transfer the rest to my five nieces and nephews."
"You know, Joe, if you give them the home, stocks and bonds and CDs
they will pay zero estate and income tax. But if you give them the IRA,
they would have to pay income tax. A better plan might be to give the
IRA to charity. Because a charity is tax exempt, it doesn't pay the
income tax. In your case, that's a savings of over $60,000."
Joe: "That sounds like a great idea. How do I make that gift?"
"Your IRA is transferred by a beneficiary designation. We will obtain
the form from your IRA custodian and designate your favorite charity.
The nice part about a beneficiary designation is that it avoids
Bequest for a Purpose
A bequest of assets
through a will, a revocable living trust, or a beneficiary designation
of a retirement plan also enables you to select a purpose. In most
cases, donors simply leave a bequest for the general purposes of the
charity. Because your bequest may occur many years after you sign your
will, it is good to give the board of directors of the charity
opportunity to select the best and most effective use of the bequest.