The Basics of Charitable Beneficiary Designations

Etta is a lifelong Moravian who had been thinking about how she could make a significant gift to support her church. She contacted the Moravian Ministries Foundation to explain her goals and describe her assets. Originally she thought about leaving her IRA to her children and other assets to charity; however, we suggested another strategy. We explained to Etta that if her children inherited her IRA, the estate would pay estate taxes, and her children would pay income taxes on the IRA. But, by giving the IRA to charity and other assets to her children, Etta could still provide a nice inheritance to her children while avoiding the income tax. Etta then contacted her IRA custodian, who sent her an IRA beneficiary designation form. She completed it, named her Moravian church as the primary beneficiary of her IRA, and mailed the form back. Etta is very happy with the plan as she's able to help her children and strengthen her church's ministry for years to come.

What are the advantages of beneficiary designation gifts?

1. Revocable: You can modify or revoke the beneficiary designations at any time during your lifetime.

2. Avoid probate: Gifting assets via a beneficiary designation will avoid the probate process.

3. Easy to do: Simply fill out a brief beneficiary designation form provided by the plan or account administrator. (You will need the legal name and tax ID number of the Moravian ministry you want to be the beneficiary.)

4. Tax savings: By making a gift of your retirement plan to a Moravian ministry, your estate will receive a 100% charitable deduction, thereby saving estate taxes, and will avoid the income taxes on those assets. By comparison, if your estate were subject to the estate tax, your retirement plan would be subject to estate taxes, and if you left your retirement plan to children or grandchildren, those assets would result in substantial income taxes. From a tax perspective, your retirement plan is a "good" asset to leave to charity and can be a "bad" asset to leave to family.

5. Inexpensive: In most cases there is no need to amend your will or trust, thus saving legal fees.

Is a beneficiary designation right for you? If you're interested in or have questions about making a beneficiary gift designation, please contact us.

Copyright © 2015 Crescendo Interactive, Inc. Used by permission.