Do Your Donors Know All Their Retirement Plan
Beneficiary Options?
Many of your members and donors likely have IRAs. However, they may
not realize that, should they die before withdrawing the entire account,
this popular retirement savings option can be an inefficient means of
distributing assets. Why? A combination of income and estate taxes can
greatly diminish assets bequeathed to a child or other individual beneficiary
(excluding the decedent's spouse). Income taxes alone can reduce bequeathed
retirement plan assets by more than one-third. But if a donor passes
assets to a charity, none of these taxes apply.
Charity as Beneficiary
Recently, bequesting retirement plan assets to charity has become
an even more efficient and flexible way to distribute funds. For instance,
when a donor names a charity as beneficiary he or she can still use
the new minimum distribution tables. That means the donor isn't forced
to take out - - and pay tax on as much money each year.
Before 2001, when a plan owner named a charity as beneficiary the
donor was treated as a single individual and had to take assets out
of the plan much more quickly. The reason? Life expectancy was based
only on the plan owner's life, Now, all owners, regardless of their
marital status or who their beneficiaries are, can use tables with longer
life expectancies. Essentially, taxpayers now can give more assets to
a charity at less cost and therefore have more assets available for
relatives and other taxable beneficiaries.
Name That Beneficiary
Donors have different ways to name a charity as recipient of retirement
plan assets. One is to name their estate as beneficiary and to identify
all beneficiaries (individual or charity) in your estate.
Another strategy is to use a retirement plan beneficiary designation
form to name the charity Donors can name beneficiaries for specific
dollar amounts or percentages of the retirement plan assets. This simplifies
accounting and avoids probate for these assets, which reduces the time
and cost to administer an estate. Remember that beneficiary designations
take precedence over a will. That means that if the donor issues a beneficiary
designation form for his or her IRA, naming a child as beneficiary,
and later alters his or her will naming your nonprofit as beneficiary
of the same plan, the assets will go to the child.
Knowledge Is Power
Times change and so do priorities. Make sure your donors know all
their options. The result will be more security for their
families and, with any luck, a nice contribution to your organization.
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publications are distributed with the understanding that the author,
publisher and distributor are not rendering legal, accounting or other
professional advice or opinions on specific facts or matters, and, accordingly,
assume no liability whatsoever in connection to its use.
