It’s “Tax Time” and most of us are continually amazed by the complexity of the IRS tax code which is now 74,608 pages. In 1984 it was 26,300 pages, so it has grown 183 percent in just the past 30 years.
Byzantine would be my description of our current tax code. Since everyone has been recently mentally taxed by dealing with our current tax code, I hesitate to address a topic here regarding taxes. However, I think it’s timely to share with you an idea that involves taxes, but let me assure you it’s a simple and straightforward concept.
The concept is simply this: Gifts of unused retirement assets are in most cases the best asset to contribute to charity through your estate plan and also the simplest to donate.
Donating part or all of your unused retirement assets, from your IRA, 401(k), 403(b), pension or other tax-deferred plan, is an excellent and tax-wise way to make a gift to your favorite charity or charities. Most people don’t realize that up to 60-70 percent of your retirement assets may be taxed if you leave them to your heirs at your death. A better option is to leave your heirs assets that receive a step up in basis, such as real estate, stock, or life insurance and give the retirement assets to charity.
And making this type of estate gift is extremely simple. All you need to do is complete a new beneficiary designation form indicating the charity or charities that you wish to support with a portion or all of your remaining assets in your tax deferred retirement fund. As you are meeting with your financial advisors during tax time, it’s a good idea to annually make sure all of your beneficiary designations are up to date. Remember that these beneficiary designation instructions take precedent and if, for instance, your will indicated a different beneficiary for this asset, the designation form is what will rule.
If you, like many people, have multiple charities that you would want to support through your unused retirement fund, organizations like Truman Heartland Community Foundation can provide flexibility for you and your heirs. You could, for example, establish a family foundation as the beneficiary of your unused retirement assets and name your children as the advisors who would determine which charities receive these funds.
So in essence you are leaving these funds to your children but requiring that they spend it to support charities. You could also create an endowed family foundation that would provide annual income to your favorite charities according to your instructions. Another option is creating a scholarship fund tailored to your education interests. When you work with a Community Foundation creating a family foundation or scholarship fund is also a simple process.
I hope you agree that although this idea involves taxes it’s a simple and straightforward concept that can enable you to leave a charitable legacy.
Phil Hanson is president and CEO of the Truman Heartland Community Foundation, based in Independence.