Consider beneficiary designation as creative charitable deferred gifting strategy.


Article provided by Michael Colbert, Member of the Legacy Giving Council

As a former financial planning consultant, early in my career I would often have conversations with clients regarding estate planning. This usually focused around the importance of having a will, naming the right executor and encouraging them to share information with their children and key family members. I would often volunteer several names of attorneys with whom they might continue the conversation. Most often, that’s as far as it went. I did not ask enough “value added ” questions and unfortunately, these people were rationally convinced they needed an estate plan, but were not emotionally moved to take action. It is easier to procrastinate, despite the best of intentions.

Today I see many people across the nonprofit sector who are excited to “pay it forward” and make a difference to change the world. Many of these people believe in connecting and helping the next generation. Statistically about half of them may have wills. They often ask: “What is the best way to leave money to a charity”? There is no single right answer.

Some would say:

  1. Formalize your intentions in your will.
  2. Transfer ownership / change beneficiary of life insurance.
  3. Write a check today before you are gone.
  4. Let your heirs deal with it.

I would submit that options 1,2 and 3 all have merit, with number 1 being the best. Unfortunately many of us do not want to go through the time and cost of changing a will. For those of you in this category, I recommend you consider a simple, low cost and fast alternative: Make the charity a partial beneficiary of your 401k or IRA. You can do this by requesting a beneficiary designation form from your provider. Your beneficiaries can be itemized by % to be received. In the case of a charity, your IRA beneficiary form will also ask for the Tax ID number and address of the organization (readily available from your contact). It is simple, fast and costs nothing!

Beneficiary designation advantages:

  1. Charity gets the money tax free. The 401k/ IRA money would usually otherwise be 100% taxable income to your heirs. (Note: there are a few exceptions to defer the tax, such as the spousal rollover provision.)
  2. No delay or cost in setting up.
  3. No delay in final distribution as the beneficiary designation, not the will, controls the distribution.

You are encouraged to join the growing number of people setting up a charitable gift using this IRA beneficiary strategy. Share this with your loved ones and future beneficiaries. Grown children typically react very favorably and are proud of the “values statement” and role modeling that this provides.

Knowing that your future gift is set up should give you much satisfaction, pride and happiness for years to come!

This information is for educational and informational purposes only and should not be considered either legal or financial advice. For that please consult your own professional advisors.