Leaving Your Client’s Retirement Account to Charity and Children

LogoFinalOutlinesRevised2016You have probably told your clients many times that retirement accounts are best left to charity instead of heirs because of the taxable nature of those assets. Heirs might lose 40 percent or much more of the value of such accounts to taxes. However, when left to a qualified nonprofit, the whole account goes to the purpose intended.

This leads to a problem for many of your clients whose assets are primarily in retirement accounts. How can those assets be left to your clients’ heirs without suffering the associated tax burden? By working with the Community Foundation, your clients won’t have to choose between family and charity. There are strategies available to provide more money for your clients’ heirs while still supporting the causes and the community that they care about for generations.

A client could make the Community Foundation beneficiary of their retirement account as trustee of a charitable remainder unitrust (CRUT). After the client dies and the CRUT receives the retirement account funds, regular payments will be made to family members or friends who are named in the trust. Trust payments will be potentially taxable to the recipient. However, unlike the inherited IRA distribution rules, the payments from the CRUT can last for the beneficiary’s lifetime or for a term up to 20 years. Also, the assets in the CRUT are protected from creditors, which may not be the case for inherited retirement accounts.

The CRUT is flexible in design, so the payment amount and time period covered can be adjusted based on your client’s situation. Ultimately when the heirs pass away, the remainder in the CRUT will go to a fund at the Community Foundation to be used in accordance with the charitable instructions provided by your client when the CRUT was created. A few points to consider:

  • The approach discussed is most applicable for a single person, or as a contingent beneficiary for a married person.
  • The heirs will only receive an income stream and not a lump sum. If a lump sum payment to heirs is desired, a portion of the retirement account could be left directly to the heirs.
  • The charitable benefit should be emphasized to the family. Not only can this choice provide about the same or more benefit to the heirs assuming average life expectancies, but it should also provide a substantial amount to charity as well.

How to create this plan:

  • Contact us to discuss your client’s situation. Together, we will consider:
    • The number of beneficiaries and their ages.
    • The possible payment amounts and duration.
    • The plan for their charitable fund.
    • We can design a plan and help with implementation.

If you would like to discuss this topic further or learn about options to make a difference with your plan or your client’s plans, please feel free to contact Tom Griffith, Director of Gift Planning, at 315-883-5544 or tgriffith@cnycf.org. Learn more at 5forcny.org.

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