|
Gift of Retirement
Plan Assets
A gift of retirement plan assets is
a gift arrangement where IRA or other "tax-qualified" plans are
given to charity - usually after the death of the plan owner. As
with any estate asset, retirement plans are subject to a transfer
tax at death. This alone can reduce the amount heirs receive by
as much as 55%. However the estate tax is not the only cause of
erosion. Because the law characterizes these assets as "Income in
Respect of a Decedent" or IRD, retirement plan assets are also subject
to income tax at death. Combined, the total tax at death can dramatically
reduce a retirement plan's value.
How does it work?
Retirement plan assets
can be used to fund bequests by simply naming a charity or secondary
beneficiary of those assets. Or, you could establish a charitable
remainder trust in your will and name someone as a life-time
income beneficiary with a charitable organization receiving the
remainder. If a spouse is the income beneficiary, the the martial
deduction eliminates any estate tax on retirement plan assets; plus
because the trust is tax-exempt, it will not be taxed on the retirement
plan assets placed in the trust, so no income tax will be due. The
total tax savings on a large retirement plan can be enormous as
the following table illustrates. The table assumes a single individual
dying in 1999.
| |
Give
IRA to Heirs |
Give IRA to Charity |
Give
IRA to 20 Yr 7% Charitable Remainder Trust |
| Non-IRD
Property |
$600,000 |
$600,000 |
$600,000 |
| IRA
(IRD Estate) |
$1,000,000 |
$1,000,000 |
$1,000,000 |
| Total
Estate |
$1,600,000 |
$1,600,000 |
$1,600,000 |
| Estate
Tax |
$389,500 |
-0- |
$163,050 |
| Income
Tax |
$241,758 |
-0- |
-0- |
| Total
Estate to Heirs |
$968,742 |
$600,000 |
$1,241,573 |
| Total
to Charity |
-0- |
$1,000,000 |
$680,704
* |
| Net
Value of IRA |
$368,772 |
$1,000,000 |
$836,948 |
| Tax
Rate on IRA |
63.13% |
0% |
16.3% |
* Present value of future
bequest.
What are the benefits
- Eliminates the income tax imposed
on the retirement plan beneficiary.
- Reduces estate taxes by removing
the asset from the taxable estate.
- Allows other estate assets to pass
to heirs without the burden of income taxes.
- Can provide a lifetime income (via
charitable trust) to a spouse or other heir, and escape the income
tax imposed on the plan beneficiary.
DISCLAIMER
The information contained in this site is for educational purposes
only. The reader understands that Millsaps College is not
rendering legal advice and that the reader should seek independent
legal counsel when contemplating estate planning decisions.
For
More Information Contact
Gift and Estate Planning
Services
P.O. Box 151191
Jackson, MS 39210-1191
(voice) 601-974-1035 (fax) 601-974-1088
|
