By Libby Banks, The Law Office of Libby Banks, PLLC
If you wish to leave some of your estate to charitable institutions, then a gift from your retirement accounts can have tremendous advantages. There are many ways to benefit your favorite charity both now and at your death. If these charitable gifts are done properly, you can receive tax advantages now, and save your heirs taxes later.
1. Making Your Charity the Beneficiary of your Traditional 401(k) or IRA
Your contributions to your traditional 401(k) or IRA are pre-tax money. You, or an individual inheriting the IRA from you, will pay taxes when they withdraw the funds. If you have a beneficiary on your retirement accounts who is 10 years younger than you, they will have to withdraw all those funds within 10 years of your passing. If giving to charities is part of your plan, then making the charity the beneficiary may be the better plan, tax-wise. Naming a charity as a beneficiary means they will pay no taxes on the distribution of that traditional retirement account. Note: be careful when you have both individual beneficiaries and charities on the same IRA, as there can be unintended tax consequences when you do so. Consult with an attorney or CPA to avoid any issues.
2. The Donor-Advised Fund
Donor-advised funds offer a simple way for you to benefit a variety of charities during your life and beyond. A donor-advised fund can be established with, for instance, a community foundation. In our state, the Arizona Community Foundation is one choice for a donor-advised fund. The donor can give cash or securities to the fund. He or she receives an income tax charitable deduction for the year of the donation. The donor designates the charities that they want to receive the benefit of their donation – or they can designate the types of charities rather than specific charities. A donor advised fund can be used for a gift from your estate after your death as well.
3. Charitable Remainder Trust
A charitable remainder trust allows the donor to give assets to an irrevocable trust that then provides income for one or more individual beneficiaries (even you and a spouse), and at the end of a specific period, or on the death of the beneficiaries, the remainder of the assets are given to charity. This type of trust can be another method to gift highly appreciated assets. The trust will permit the donor to claim an immediate charitable deduction for the value of the assets that will ultimately pass to the charity. The donation also avoids the capital gains taxes on any appreciated assets.
If you are interested in charitable planning for your estate, our office can help. Call the Law Office of Libby Banks (libbybanks.com) for an appointment to discuss the options at 602-375-6752.
