OUR SERVICESMost people are shocked to learn that if retirement assets (e.g., an IRA, 401(k), or any other qualified plan) are left to a non-spousal beneficiary, estate and other tax obligations can reduce the amount passing to your heirs, often in excess of 75% of their value. This could mean that for every dollar you had anticipated leaving to your loved ones, they would actually receive 25 cents. Clearly, this is not what you intended to happen to your retirement plan.
After taking into account the amount in your plan and minimum withdrawal requirements and determining what is needed to support your current life-style, a charitable gift might provide a solution. For example, if you intended to include charitable bequests as part of your estate, naming a charity or your foundation as beneficiary of the qualified plan will avoid all income and estate taxes. The charitable beneficiary will qualify to receive the intended amount in its entirety, at no tax cost.
It is also possible to create a charitable remainder trust by withdrawing all or a portion of the plan assets after you reach at least age 591/2 and placing the net amount, after income taxes, in the trust. Although there will be some tax obligation on the withdrawal, it will be reduced by the charitable deduction derived from the use of your foundation or the charitable remainder trust. The trust will pay income, possibly tax exempt, for the rest of your and your survivor’s lifetimes. You can choose to use this income to replace a substantial portion of the value of the plan for the benefit of your heirs free of estate and other taxes. This can also be accomplished by creating a charitable remainder trust that will take effect at the end of your lifetime for the benefit of the surviving spouse using the assets in your qualified retirement plan. Your spouse, as life income beneficiary of the trust, can use some of the economic benefits received from the trust to replace its value for your heirs at low transfer tax cost.
Employing one of these techniques could be the most cost-effective way of supporting your favorite charity.
For more information, contact Clara Nyman, Director of Development at (212) 870-4938 or cnyman@jhha.org.