Life and Death Planning for Retirement Benefits

Chapter 7: Charitable Giving

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of the date of death, with the Museum’s portion sharing pro rata in gains and losses that occur after Nora’s death, then the same options will be available as discussed under ¶ 7.2.02 (B) and (C) above (establish separate accounts by 12/31 of the year after the year of Nora’s death, or pay out the charity’s share in full by 9/30 of the year after the year of Nora’s death). If the Museum is to receive a flat $100,000, regardless of any post-death fluctuations in the account value, then the option of establishing separate accounts will not be available. See ¶ 1.7.06 (A). However, the option of paying out the charity’s entire share by 9/30 of the year after the year of Nora’s death is available either way. If the Museum receives its full share of the account by that date, the Museum does not count as a beneficiary of the account for required minimum distribution (RMD) purposes, and Diana can use the life expectancy payout method for her share of the IRA. B. Consider separate IRAs for large pecuniary bequests. For example, Nora might divide her IRA into two separate IRAs while she is still living, one containing something more than $100,000 (perhaps $200,000?) of which the beneficiary is “$100,000 to the Topeka Maritime Museum, residue to Diana,” and the other containing the balance of the IRA ($800,000?) payable solely to Diana. That way, she can have her pecuniary bequest to the charity just as she wants it in the smaller IRA. Meanwhile, the bulk of the assets ar e in a separate IRA payable solely to the individual beneficiary, and this IRA is not subject to any risk of losing the life expectancy payout method due to failure to meet the post-death deadlines. C. Put small pecuniary bequest in will? If the pecuniary bequest to charity is modest, consider putting the charitable bequest in the client’s will. Though it is more tax- advantageous to fund the charitable bequest by designating the charity as a beneficiary of the retirement plan, the advantage (if the bequest is very small) may not be worth incurring the risk of jeopardizing the life expectancy payout for the individual beneficiaries. Richard Example: Richard has a $1 million IRA and many other assets. He wants to leave $10,000 to a charity that cares for abandoned emus, and the rest of his estate to his children. Richard’s lawyer suggests that it does not make sense to jeopardize the children’s ability to use the life expectancy payout method for their share of the IRA by putting this small charitable bequest in the beneficiary designation, nor is it worth creating a separate IRA for this amount. Accordingly, Richard’s lawyer recommends putting the bequest into Richard’s will, rather than in the beneficiary designation, despite the fact that it would be more tax-efficient to fund it from the IRA. D. Make charity’s gift conditional on payment by 9/30? Richard in the preceding example tells his lawyer that she’s too chicken. Richard wants to put the $10,000 charitable bequest in the beneficiary designation form for his $1 million IRA; he is confident his children are sufficiently competent that they would pay out the charity’s share before the Beneficiary Finalization Date ( ¶ 7.2.02 (C)). However, just to be on the safe side, he makes the charity’s IRA gift conditional on the charity’s taking its entire $10,000 share of the IRA prior to the Beneficiary Finalization Date. The beneficiary designation form says, “Pay to Charity X the sum of $10,000 before September 30 of the year after the year of my death; and pay the balance (including any portion or all of said $10,000