What is in this article?:
- Charitable giving should be part of estate plan
- Retirement savings
- Want to keep some of your hard-earned money from going to the tax man when you die, and accomplish some good at the same time?
- You can accomplish both goals as a part of your estate planning by making gifts of money or other assets to your church, your alma mater, or your favorite charities.
Retirement savings, such as IRAs, can also be included in estate planning to benefit charity and reduce or eliminate tax liablities, Chris Cole, financial consultant with JJB Hilliard, WL Lyons LLC, explained.
“Retirement savings held at death are hit with a double whammy: estate tax based on the value at date of death and income tax on assets as they are consumed. Instead, these savings can be an ideal post-death charitable gift.”
An example: Farmer Jones died and left an estate of $1 million. Of that, $100,000 was an IRA with his children as designated beneficiaries. Of the remaining $900,000, he left 10 percent, $90,000, to charity.
With the estate tax exclusion, no tax would be levied on the $900,000, but the $100,000 would be subject to income tax at the 34 percent rate, or $34,000, which the children would have to pay.
If, on the other hand, the beneficiary of the $100,000 was a designated charity, there would be no tax due on the gift. The charity would get $10,000 more, the heirs would get $34,000 more, and the government would get zero.
“Donating an IRA to a charity can also reduce taxes, increase the amount going to heirs, and help a good cause in the process,” Cole says.
Stocks, land, and other assets that have attained a substantial increase in value can also be donated directly to a charity, he notes, thus avoiding capital gains taxes and taking a full deduction of the value of the assets.
“This has potential for significant savings,” he says.
Cole emphasized that IRAs, life insurance, or other assets with beneficiary designations need to be reviewed frequently, and updated as life situations change, in order to insure that they are distributed according to one’s wishes after death.
“This is something you have to be proactive about,” he says.