Transcript Planned Giving with Retirement Accounts

Charitable Giving
with Retirement Plans
A brief introduction to using retirement
plan assets in your planned giving
Mike Branch, CFP®
Focus Financial
2665 Long Lake Road #270, Roseville, MN 55113
651-379-3935 direct; 651-631-8166 main
[email protected]
www.mikebranch.net
Securities offered through Royal Alliance Associates, Inc. Member FINRA/SIPC
Why Leave Retirement Plan Assets to Charity
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#1 Reason: to benefit charity
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Tax-efficient use of retirement plan assets
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Donors must have charitable intent
Designated beneficiaries pay tax on inherited retirement
assets; tax-exempt charities do not
Accomplish other estate planning goals
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Reduce the taxable estate
How to Leave Retirement Assets to Charity
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Name charity as sole beneficiary
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Charities are listed as only beneficiaries on the
beneficiary form
Works well when multiple charities are listed as
beneficiaries; each receiving a percentage or dollar
amount
Name charity as partial beneficiary
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May present tax problems for some beneficiaries
 Name a separate IRA to hold assets that will pass to
charity by 12/31 of the year after the death of the
IRA owner
 Pay out benefits to charitable beneficiary by 09/30
of the year after the death of the IRA owner
How to Leave Retirement Assets to Charity
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Leave a pecuniary bequest
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Specific dollar amount goes to charity; remainder to
designated beneficiaries
Some custodians may not accept
Same multiple-beneficiary rules apply as above
Post death market fluctuations may complicate gift
Consider separate IRAs for large pecuniary bequests
Make smaller pecuniary gifts via will
Make charitable gift conditional on payment by 09/30
 “pay to charity X the sum of $100,000 before
September 30 of the year after the year of my
death…”
How to Leave Retirement Assets to Charity
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Leave benefits to charity via a trust
 May be appropriate when:
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Charitable recipient is a charitable foundation that is
not created until death of the IRA owner
Amount going to charity is based on a formula
Charitable recipients are determined after death
Formula bequest in beneficiary designation
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Some IRA custodians may not accept
How to Leave Retirement Assets to Charity
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Via Disclaimer
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Charity is named as a contingent beneficiary; primary
beneficiary “disclaims” assets that then pass to the
contingent beneficiary
Allows primary beneficiary to retain control
Contingent beneficiary may not be:
 CRT in which the disclaimant is an income beneficiary
 A private foundation in certain circumstances
Via your estate
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Estate may receive an income tax deduction on assets
given to charity
Which Type of Charitable Entity
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Public Charity
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Generally, 501(c)3
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Private Foundation
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Donor-Advised Fund
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A public 501(c)3 charity that receives contributions from
many donors, invests those funds in separate accounts,
and later distributes funds to “real” charities such as
museums, churches, other 501(c)3’s, etc.
Not obligated to follow the donor’s suggestions
Which Type of Charitable Entity
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Charitable Remainder Trust (CRT)
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Trust pays income to one or more non-charitable
beneficiaries; at the end of the trust, remaining assets
are paid to charity
Avoids IRA Required Minimum Distribution rules;
however, CRT must pay out at least 5%
Decedent’s estate is entitled to an estate tax charitable
deduction for the value of the remainder gift
Which Type of Charitable Entity
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Charitable Remainder Trust – Reasons NOT to
leave benefits to a CRT
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Spousal consent may be required
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Only the actuarial value of the remainder is allowed as a
charitable deduction
 CRT may not work well with a non-spouse beneficiary
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May not work if beneficiaries are too young
 To be a valid CRT the value of the remainder must be
at least 10% of the total value of the trust
Which Type of Charitable Entity
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Charitable Lead Trust
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Usually not suitable
CLT is not exempt from tax
 Retirement plan benefits would be taxable
Charitable Gift Annuity
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Has some advantages over CRT:
 Income is for life
 Income is fixed
 No need to draft CRT
 May be more appropriate for smaller donations
Lifetime Gifts of Retirement Benefits
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Lifetime Gifts from Distributions
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Percent-of-income limit
 30%, 50% of AGI
Deduction-reduction for high-income taxpayers
Alternative Minimum Tax
Split-interest gifts only partially deductible
 CRT example
Penalty for pre-age 59 ½ distributions
 10% penalty
State income taxes
 Some states don’t allow taxpayers to deduct
charitable contributions
Non-itemizers
Deduction decreases taxable income but not AGI
Lifetime Gifts of Retirement Benefits
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Donate the Required Minimum Distribution (RMD)
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Appropriate for those who do not need the income
Also for those who plan to donate their retirement plan
to charity at death
Gift of NUA stock
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Tax on NUA stock is due when stock is sold
Gifting NUA stock to charity avoids tax
Lifetime Gifts of Retirement Benefits
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Qualified Charitable Distributions (QCD)
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Made directly from an IRA
Does not affect the AGI
Donation limited to $100,000/year per IRA owner
QCD can be made only from IRA assets
Donor must be 70 ½ or older at the time of distribution
Available to non-itemizers
Not appropriate for Roth IRA
QCD must be a contribution that normally would be 100%
deductible; therefore, QCD may not be made to:
 Donor advised fund, CRT, or other split-interest gifts
QCD meets the IRA RMD requirement
Putting It All Together
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Retirement plans may offer a more tax efficient way for the
charitably-inclined to give
Giving with retirement plans may accomplish other estate
planning goals
Consider separate IRAs, if IRA beneficiaries include both
individuals and charities
Not all charitable entities are suitable for giving with
retirement plans
Consider using retirement plans to fund charitable gifts
during donor’s lifetime
For More Information
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“Life and Death Planning for Retirement Benefits”, Chapter
7, Natalie Choate
IRS Publication 526, “Charitable Contributions”
Mike Branch, CFP®
 Focus Financial
 2665 Long Lake Road #270, Roseville, MN 55038
 651-379-3935 direct, 651-631-8166 main
 [email protected]
 www.mikebranch.net