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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 marital 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.

 

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.

 

For more information contact:
Gift and Estate Planning Services
Millsaps College
P.O. Box 151191
Jackson, MS 39210-1191
(voice) 601-974-1035  (fax) 601-974-1088

DISCLAIMER: The information contained on this page 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.