During your working years, you may have accumulated money for retirement via a tax-sheltered retirement plan such as a 401(k) or 403(b). And upon retirement you transferred your accumulated funds to a self-directed IRA. Distributions from the IRA plus income from various securities and other investments will sustain the lifestyle you have planned.

If you have managed your investments and expenditures prudently, a substantial amount may remain in your IRA at the end of your life. Following, for your consideration, are two ways to use remaining IRA funds to both provide for your children and make a planned gift to support our work. In each case, we will assume that you are survived by children but not by a spouse.

Name Both an Adult Child and a Charitable Organization as Beneficiaries of Your IRA
This is accomplished by completing a change-of-beneficiary form provided by your IRA administrator. Simply indicate what percentage of remaining IRA funds is to be paid to your children and what percentage to us. If your circumstances should subsequently change, you can alter the percentages payable to each via a new beneficiary form—and you can do this without changing your will.

Likely, the wealth you plan to transfer to your children will consist of both remaining IRA funds and other appreciated assets. If that is the case, it is generally preferable, from a tax standpoint, to make your children’s gifts with appreciated securities in your brokerage account and your charitable gifts with IRA funds.

Reasons: (1) Your children would have to pay income tax on IRA distributions (other than from a Roth IRA), whereas, if they receive appreciated securities from your brokerage account, their tax basis in those securities would be stepped-up to their value on your date of death—resulting in no tax on the gain accruing prior to that time. (2) Because we are tax exempt, there will be no tax on distributions to us from an IRA.

Arrange Life Income to an IRA Beneficiary
Prior to the enactment of the SECURE Act in 2019, it was possible to name a beneficiary of an IRA and stretch the payments over the life expectancy of a named beneficiary. However, the SECURE Act ruled that, with certain exceptions, funds given to non-spousal beneficiaries must be fully distributed within ten years.

Although such a stretched-out IRA is no longer possible, a parent could achieve a similar result by establishing a charitable remainder trust. The trust would be named as beneficiary of the IRA or a portion of it, and payments could be made over the entire life of the beneficiary. The ten-year limit would not apply. The trustee might be the adult child, who is also the income beneficiary. At the death of the income beneficiary, the trust will terminate and the remainder will be distributed to the charity named by the parent. The parent will not only have created a charitable legacy but will also have provided lifelong security to a son and/or daughter.

These examples have two things in common: They both concern IRA funds held at the end of your life, and they both show how to structure IRA gifts in a way that benefits both loved ones and the charitable causes that are important to you.

Please don’t hesitate to contact us with any questions you may have about the most tax-advantaged ways to both leave your legacy and support our mission for years to come.