Retirement Plan Assets

A qualified retirement plan works well for saving for retirement, but not for passing assets to heirs. Retirement plan assets are subject to multiple layers of taxation at the owner’s death, in the form of federal and state estate tax as well as income tax. As a result, retirement assets are taxed much more heavily than other estate assets. If left to a spouse or child, the taxes can reduce the value of the retirement savings by 50 percent. If left to a non-spouse, taxes can claim in excess of 75 percent of a plan’s accumulations.

However, careful planning for the disposition of retirement plan assets will avoid unnecessary tax costs. By naming a charity as survivor beneficiary of your retirement assets, the gift becomes completely exempt from estate tax, income tax, and generation-skipping transfer tax, permitting you to make your gift at very low actual cost to your heirs. If you intend to leave a legacy to a charitable organization through your will, prudent planning should be considered for you to make your gift from retirement plan assets instead, leaving the lesser-taxed assets (real estate, securities and cash) to your family.

Life Insurance

Life insurance offers an attractive way to leverage relatively low premium payments to make a major gift to a charitable organization. If you no longer need all the life insurance that you own, you may want to name a charitable organization as a beneficiary or contingent beneficiary. Any benefit the charitable organization receives from your insurance will be excluded from your taxable estate.

By taking the additional step of naming the charitable organization irrevocable beneficiary and owner of your life insurance policy, you obtain an income tax charitable deduction equivalent to either the policy’s cash surrender value or replacement value. If additional premium payments are due, you can deduct those premiums as charitable contributions each year.