Create a Legacy with Gifts of Retirement Plan Assets
When retirement assets from qualified retirement plans* pass to heirs, the assets may be subject to both estate and income taxes which can reduce the amount beneficiaries receive by as much as 65% or more! Donors can avoid having retirement plan assets diminished in this way by designating a non-profit organization as the beneficiary of their retirement accounts and leaving other assets (such as appreciated stock with a stepped-up cost basis) to their heirs.
| Beneficiary |
Heirs |
Monadnock Humane Society |
| IRA Value at death |
$1,000,000 |
$1,000,000 |
| Estate Tax (at 46%) |
($460,000) |
0 |
| Net after Estate tax |
$540,000 |
$1,000,000 |
| Income Tax (at 35%) |
($189,000) |
0 |
| Net Benefit of Gift |
$351,000* |
$1,000,000 |
| Note: In this example, the family receives about 35 cents on the dollar. |
* Qualified Retirement Plans: defined benefit or defined contribution pension plans, money purchase pension plans, profit-sharing plans, annuity plans, 401(k) or 403(b) plans, qualified contributions into 457 deferred compensation plans provided by municipal governmental employers, stock bonus plans, Employee Stock Ownership Plans (ESOP) or simplified employee pension plans (usually a SEP-IRA) from your workplace, Keogh accounts, and certain Individual Retirement Accounts (IRAs) you may have set up for yourself.
There are two ways to accomplish this.
First, a donor may designate a charitable organization as their beneficiary to receive the IRA or qualified retirement plan assets by contacting the institution where the retirement account is established, obtaining beneficiary change forms, completing the forms and returning them to the institution holding the account. The donor's estate will pay no income tax on the gift and the donor's estate tax liability will be reduced. This is one of the easiest and least expensive ways to leave a legacy gift.
A second strategy is to name a charitable remainder trust as the beneficiary of the IRA or qualified retirement plan. The trust benefits the family/heirs for a period of time as specified in the trust instrument. No income tax will be due on the assets at the donor's death, and the estate will receive a charitable estate tax deduction for the value of the charitable gift. When the trust term expires, the remainder of the trust's assets will be used to create a permanent charitable fund for the designated non-profit organization.
Always seek the counsel of your own professional advisors for personal legal, tax or financial planning advice. If you have questions about ways you can support MHS, please feel free to contact Carol Armer, CEO at (603) 352-9011, ext. 111, for a confidential consultation. You may also reach Carol by email at carola@humanecommunity.org.
