Bequest of IRA
Many folks have an individual retirement account (IRA). An IRA has some very nice benefits. You can accumulate property, and it grows tax free in the IRA, at least until the age when the first withdrawals are permitted. If you desire, you can continue to accumulate until the age that you must take the mandatory minimum distribution. Thereafter, you can take the distributions over your lifetime or, for husband and wife, your two lifetimes. Since many people do not take the full distributions of their IRA during their lifetime, there may be a substantial balance in the IRA when you pass away.
One thing to remember about the IRA is that you may end up bequeathing that to family members and they could pay both an income tax and an estate tax on that IRA. Since the IRA has value, if your estate is over the exemption equivalent, there will be an estate tax on the IRA. In addition, since this represents untaxed ordinary income, the family when they receive it could also be required to pay income taxes with a small partial offset for the previous estate taxes already paid. The net result of this combined taxation, which also may include extra state taxes, could be over 80%.
Given this massive potential taxation of your IRA, many persons have decided to leave other assets to family members that have much more favorable tax treatment and to leave a bequest of the IRA to charity. Whatever is not needed during your life could then go to a charity, like the HaysMed Foundation. The major advantage of this is that it bypasses the income tax and the estate tax. Charities are not subject to either income or estate taxes.
You can choose to do this with part or all of your IRA, and it’s among the simplest ways to make a sizeable impact on your favorite charities’ missions. You simply use the beneficiary designation form created by your custodian of the IRA and designate part or all of this to a qualified charity.
This material has been prepared for informational purposes only and is not intended to provide, and should not be relied, on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.