Many people donate planned gifts to charities as a way of establishing their legacy and making the world a better place for future generations.
There are many ways to leave a charitable planned gift. One common way is by naming a charity as a beneficiary of a retirement account, such as an IRA or 401k.
The tax benefits of doing this can be dramatic. When leaving an IRA, or portion of an IRA, to charity, the full value transfers to the charity. In contrast, if an IRA is left to a non-spouse beneficiary, such as a child or estate, income taxes can significantly reduce its net value.
But there is something to watch out for.
IRA plan administrators may not be legally required to notify IRA beneficiaries that you have passed away or that they are a beneficiary. Therefore, a charity named as a beneficiary of an IRA may never find this out. This could lead to the funds remaining with the plan administrator in the retirement account and eventually being handed over to the state’s “unclaimed property” division.
As the donor of a planned gift to a charity, you can prevent this situation by notifying your professional advisors of your current beneficiary designations and their contact information. Retirement beneficiary designations should be included with your estate planning documents. Also, be sure to notify beneficiaries, such as charities, ahead of time so that they’re aware that they may be the recipient of a planned gift.
By doing these simple steps now, you’ll ensure that your intentions will be honored and your favorite charities will benefit from your generosity. It also provides the opportunity for the charities to thank and recognize you while you are alive.