Gifting Your Retirement Assets To Charity as Charitable Donations

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The article below provides useful information regarding charitable donations that you may consider making and the rules pertaining to them.

As the end of the year gets closer, many taxpayers attempt to streamline their finances to ensure that transactions that can be deducted on their tax returns are completed in a timely way. This includes making gifts to charities. Do you plan to include your retirement assets in charitable donations? If so, consider how it may affect your finances. In some cases, it can be more beneficial to name the charity as a designated beneficiary of your retirement account, rather than gifting the assets during your lifetime. Here we highlight some of the issues to consider when you think about gifting your retirement assets to charity.

Should You Gift Now or at Death?
Instead of gifting your retirement assets to a charity during your lifetime, you may designate the charity as the beneficiary of your retirement account. Under this option, the charity – not you – will be treated as receiving the distribution; therefore, neither you nor your estate will owe income taxes on the amount. While the amount will be included in your taxable estate, your estate will receive a deduction for the amount inherited by the charity, resulting in an offset of the estate taxes. Furthermore, because charities do not pay income taxes on the donations they receive, the distribution will avoid being taxed as income.

If you decide to designate a charity as the beneficiary of your retirement account, you may want to do the following:

  • Check with the plan administrator or financial institution to determine whether it has any restrictions on designating charities as beneficiaries for retirement accounts.
  • If you are married, check with your plan administrator or financial institution to determine whether or not your spouse must consent to the designation. Failure to obtain spousal consent could result in a disqualification of the beneficiary designation, should it be determined that spousal consent was required.
  • Make sure that the plan administrator or financial institution receives a copy of your beneficiary designation by requesting a written confirmation of receipt.
  • Make sure that the individuals responsible for handling your financial affairs receive a copy of the beneficiary designation, or know where to find it when necessary.

Caution: If a charity is one of multiple beneficiaries for your retirement account, it may have a negative impact on the stretch options that are available to your other beneficiaries. For instance, if you should die before your required beginning date, your other beneficiaries will be required to distribute the assets by Dec 31 of the fifth year following the year of your death. This can be resolved by one of the following means:

  • Establishing separate retirement accounts for each beneficiary. Thus, the charity’s lack of life expectancy will not affect your other beneficiaries.
  • The charity cashing out its portion of the inherited assets by Sept 30 of the year following the year you die. Under this rule, beneficiaries that receive a full distribution of their portion by Sept 30 are disregarded for the purposes of determining the life expectancies that affect distribution options.

Additional Considerations:

Tax Implications of Gifting During Your Lifetime 

Gifting at Death – Retirement Assets versus Non-Retirement Assets 

Trusts with Charitable Provisions as Your Beneficiary

For full article visit: http://www.investopedia.com/articles/retirement/05/giftingtocharity.asp

Conclusion 

When it comes to the rules that apply to gifting your retirement assets to charities and the issues that should be considered, this article only scratches the surface. If you are thinking about making such a gift, be sure to check with your tax professional. In addition to ensuring that the charity will use the funds appropriately, you’ll want to make sure that the charity is a qualified organization for tax purposes.

At Tindall Law Firm, LLC we are very experienced in preparing the required legal documents you would need to transfer your holdings and estate per your wishes. Please contact us with any questions on this topic or any other legal issues by calling us at  (203) 755-0018 or visiting us online at http://tindall.wpengine.com/  with all your legal needs.

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