Structuring Gifts for Causes and Family
When leaving assets to charity, be smart about it. How you leave your assets to charity can increase the quantity and quality of benefits to your charity and your heirs.
Harry wanted to split each asset 50-50 between his college and his brother's family. Half of Harry's assets are in his retirement plan. Retirement plans are taxable as current income to the person who receives them. Yes, in some cases you can “stretch” the payments out for a while, but they are still taxable, which lowers the amount the heirs receive. Harry changed the beneficiary of his retirement plan to be the college, which would not pay taxes on the distribution from the retirement plan, and he had all other assets go to his brother.
Before the change, of every $100,000 in the retirement plan, his heirs would receive about 60%, or $60,000. After the switch, the heirs receive 100% of what he leaves them. The college foundation doesn't pay income taxes, so it receives 100% of the retirement plan. Under this plan, the foundation receives the same amount, his family receives more.
Waste Management—Right Beneficiaries When giving to charity and to your heirs, make sure you have the right beneficiaries listed in the right places. The beneficiary listed on the IRA trumps the will for example. Additionally make sure that your gifts are structured to avoid taxes. Don't pay taxes to Uncle Sam that could be your gifts to your causes of your family! |
Kent was an outstanding corporate attorney. As a Corporate Superman, he thought he could do anything. Kent drew up his will and living trust and changed the beneficiary to be his estate. After all, the money was going to charity. He'd just name the charities in the will. Unfortunately Kent 's estate did not have the correct wording to enable the estate to take a charitable income tax deduction for the donations. Thus, all income taxable to the estate had no offsetting deduction. In this case, the income was a few million-dollar distribution from his retirement plan. After paying income tax , the estate was free to transfer the remainder to the charities. The income taxes could have been avoided.
Cause and Family Asset Allocation
Take a list of your resources and your flow chart to your advisors and discuss who will receive which assets. Make sure that you take maximum advantage of tax savings for estate taxes, capital gains, and income taxes for all parties. Do not try this at home. A philanthropic advisor or a specialist in charitable giving may be helpful.
Figure out not only how much goes to who and when, but which resources fit the situation best.
