Catherine M. Censullo CPA
One Minute Tax Tip


LEGACY PLANNING FOR CHARITABLE BEQUESTS


If you want to leave money to a charity upon your death, you might just list a dollar amount in your will and leave that amount to your favorite charity. 

But is that the most tax-efficient way of distributing your assets?  The chances are, it probably is not.

One thing you may want to consider if you have retirement assets in a tax deferred IRA or retirement account, is to leave the portion you wish to donate from your IRA or retirement assets.

Why would you want to do that?  First of all, if you give the IRA money to your children, they will have to pay income tax on it.  If you leave it to a charity, the charity will not pay tax on it. 

So, to give you a simple example, let's say you die with $200,000 in an IRA account and $200,000 in appreciated stock.  Suppose you wanted to leave $200,000 to a charity and $200,000 to your son.  If you give your son the $200,000 IRA, and his total tax bracket is 45%.  He will pay $90,000 in tax and be left with a net amount of $110,000.

If, instead, you gave the IRA to charity, they would get the benefit of the full $200,000 and your son would also get the benefit of getting the $200,000 stock at a stepped up basis without paying tax.

Wouldn't you rather have your son get the money than pay it to the government?

You do need to be careful about splitting IRA beneficiaries between relatives and charities.  Certain timely distributions must be made after death to allow the beneficiaries to stretch the IRA.

If you would like to analyze your situation in more detail, please give me a call.  There are other strategies available using charitable remainder trusts.  You can ask me about those as well if you are interested.


 
   
  

Catherine M. Censullo, CPA
914.997.7724
catherine.censullo@cmcensullocpa.com

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