– Some clients are incredibly concerned about estate taxes.
– Others may have a beneficiary who is disabled, and want to ensure that funds are available for that beneficiary for the remainder of their life.
Some clients are very charitably inclined, which is a wonderful and generous thing to include in their Will. Of course, it’s not for everybody; some people have more pressing concerns. A charitable gift, however, whether just a little bit or a lot, can be a way to leave a legacy and ensure that part of a person’s life savings will be used to continue a cause that they really care about.
Here are a couple of simple ways to include a charity in your estate planning:
Naming a Charity on a Beneficiary Designation Form
When someone dies in New York State, their assets are divided into two piles:
– those that do not name beneficiaries are subject to probate; and
– anything that names a beneficiary will be paid to either its joint owner or anyone listed on the beneficiary designation form.
What are some of the assets that typically will have a beneficiary designation form? These could be anything from a retirement account to a life insurance policy.
A way to do some simple estate planning, even without writing a Will, is to fill out these beneficiary designation forms. The beneficiaries can then receive them automatically just by presenting a death certificate.
When you’re looking at retirement accounts in particular, this is a fantastic way to include a charity, and an even more income tax-savvy way to do so. Why? Because if I leave my retirement account to an individual, with some minor exceptions, that individual will be obliged to pay income tax on it, perhaps losing as much as a 33-40% of the account’s value.
That’s not the case if I name a charity as the beneficiary of the retirement account. Most charities (so long as it’s a 501(c)(3) organization) do not pay income taxes. Therefore, unlike the individual beneficiary, the charity has no tax liability, and therefore will receive 100 cents on the dollar.
Given the choice between naming a charity as a beneficiary under my Will or on the retirement account, I am probably better served by designating the retirement funds to go to the charity, and naming individuals as the beneficiaries of my Will. It’s just smart tax planning.
Finally, a note on retirement accounts: Investors have the opportunity to name both primary and contingent beneficiaries. It’s not uncommon for clients who want to provide primarily for a spouse or children, but are all too happy to name a charity as a contingent beneficiary, in case the client winds up surviving the other beneficiaries. This meets their goals of primarily providing for the people who are important, but also designating who gets the money if they do not survive them.
In Your Will
As I indicated above, you can name a charity as a beneficiary on a designation form, or as a beneficiary under your Will. (Or if you’re really charitably inclined — both!). However, when you are designating a charity under your Will, you need to make some decisions:
First, is the charity going to receive a stated cash amount, or is the charity going to receive a percentage or all of the assets that remain in your estate after paying debts, reasonable funeral costs, and other smaller bequests? Is that going to be the entire Residuary Estate or a percentage of it?
As you can see, these are two simple ways to include a charity in your estate plan. The first involves something that you’re able to do without even retaining an attorney, simply by changing your beneficiary designation form. The other one involves changing the terms of your Will or other existing estate planning documents to reflect your intentions.
Finally, for all those who are charitably inclined — thank you! It is a wonderful thing to do when the situation is appropriate, and on behalf of everyone who benefits from the good work that these charities do, thank you. I always think it’s important for donors to hear that before they die and the bequest is realized.
If you or someone you know would like more information on including charities in your estate plan, please contact me.