Robert and Kristine were retired professors with two adult children. They owned a home, some stocks, and IRAs. They met with their financial advisor to discuss a plan to provide for their family and their favorite charities.
Kristine: We both had a lot of money in our IRAs, more than we could ever use. We wondered if we could pass this on to our children.
Robert: Our advisor explained the problem with giving our retirement savings to our family. He said a majority of the gift would be taxed. We didn't want our children paying any more in taxes than they already pay.
To alleviate their concerns, Robert and Kristine's advisor created a plan that stipulated their stocks and home would go to the children. He then recommended a bequest of the retirement assets be left to their favorite charities. These charitable organizations could then receive all the assets from Robert and Kristine's IRAs tax-free, allowing them to use the funds to further their missions.
Robert: It was easy to make bequests from our IRAs to our favorite charities. We filled out the online forms on our custodian's website that permitted us to allocate percentage shares to the charities we love including the Allentown Symphony Association.
Kristine: This plan met all of our goals. We liked the fact that our children could immediately sell the house and stocks with little or no tax due. We were also happy to help the causes we care about.
Your retirement plan is probably among your most valuable assets. While the retirement asset is a great asset for you, it may not be the best asset to leave to children. If you have a taxable estate, your IRA or 401(k) plan will be subject to the estate tax, and any distributions to children will also be subject to income tax. That is why many tax planners suggest leaving retirement plans to charity. This gift will produce an estate tax deduction and the charity will not have to pay income tax on the gift.
If you are in the process of determining which assets to leave to charity and which assets to leave to family, please give us a call. We can help you with estate planning strategies that will reduce your taxes and allow you to maximize the gifts you leave to family and charity.