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Review Beneficiary Designation Regularly

If the last time you looked at the beneficiary designation on your IRA was when you established the account many years ago, it’s time for a second look.  Or if the beneficiary of an insurance policy bought when your first child was born hasn’t been updated, ask the insurance company for a new form.  Laws change and your family situation probably has, too.  For example:

  • If your IRA beneficiary designation was filled out prior to 2001, it may not take advantage of the opportunity to stretch out distributions over the life of a younger family member.  Ask your financial adviser how best to leave retirement assets in coordination with your overall estate plan.  Keep in mind that you can name a charity as a beneficiary of a portion of your IRA or 401(k) account without affecting the stretch-out options of family beneficiaries.  It’s even possible to reserve income for life for family members from a retirement account gift to charity, with excellent tax results.

  • If you want your life insurance to pass to all your children, not just those alive when you bought the policy — or if you’d like the proceeds to benefit grandchildren rather than children — you may need to update your beneficiary designations. You might also name charity as the beneficiary of a policy you no longer need.  We can show you ways to provide payments for life to family members, with eventual benefit for our programs, from the proceeds of life insurance.

Do You Really Need a Lawyer?

Anyone with an internet connection can find sample will forms, so why should you pay an attorney to draft your will, living trust or other estate documents?  An experienced estate planning attorney will be able to spot potential problems or risks affecting your estate and can offer solutions and opportunities that may not be readily available from a canned will form.  Furthermore, the cost of using an attorney is relatively small, compared to the financial losses and family disputes that otherwise might arise after your death.

How can you locate an estate planning attorney?  The answer may be as simple as asking friends or family members for references.  Who was the attorney who wrote their wills or served as estate attorney when there was a death in the family?  Were they satisfied with that person’s performance?

If you have recently moved to a new community and can’t get the first-hand experience of others, call the local bar association and ask for names of attorneys who are active in estate planning and probate work.  The local bar association or estate planning council can also provide a list of names.  Be sure to ask prospective attorneys how much of their practice is devoted to wills and probate.

We’d be happy to provide language for your attorney to include in your will or living trust to establish a charitable gift to assist our programs.

The View from on High

It’s fun watching the Dow reach new highs (closing above 19000 on November 22, 2016) and taking your portfolio along for the ride.  But those nervous about the potential ride down may want to lock in some of those profits today.  Always check with your financial adviser before making moves with your investments.  You might also want to review your entire investment mix, to make sure that it’s still in balance with your overall goals and risk tolerance.  Remember, if you sell stock that has gone up in value, you’ll share some of your success with the IRS.  If you sell shares owned one year or less, you’ll pay capital gains tax at ordinary income tax rates, as high as 39.6%.  Shares owned more than one year are subject to long-term capital gains tax rates: 0% for those in the 10% and 15% brackets; 15% for taxpayers in the 25%, 28%, 33% and 35% brackets; and 20% for taxpayers in the top 39.6% bracket.  In addition, some high-income taxpayers may be subject to the 3.8% net-investment income tax, on top of the capital gains tax.  Taxes leave you with less to reinvest, unless you’re selling shares within a tax-sheltered account such as an IRA.

There is a way to lock in your profits today while still enjoying payments for your lifetime.  And because it also allows you to provide for our future, you’ll be entitled to an income tax charitable deduction.  We’re talking about a charitable gift annuity.  You can transfer shares of appreciated stock held more than one year and receive payments based on the full, fair market value, with no loss to capital gains tax.  Payments generally range from 4.4% at age 60 to 9% at age 90.  Gift annuities can also be established for two lives, at slightly lower rates.  A portion of the payments you receive each year will be subject to favorable capital gains tax rates for your life expectancy.  We’d be happy to provide you with an illustration of the financial and tax benefits of a charitable gift annuity.

Q&A on Leaving a Legacy from a Retirement Account

An IRA, 401(k) or other retirement account may be your very best resource for making a gift to charity.  Here are some common questions:

Q: I understand that if I leave my IRA to family members they will have to pay income taxes on future withdrawals.  Would it save taxes to leave part or all of my IRA to a charity?

A: Yes.  For example, you can name charity as a beneficiary of all or part of your IRA and any amount we receive will be free of all income taxes, and state and federal estate taxes, as well.

Q: Do I need to change my will to make an IRA gift?

A: No.  You can simply ask the trustee or custodian of your account for a new IRA beneficiary form.  Most forms provide language for charitable distributions, but we can provide you with our correct legal name.

Q: I have a 401(k) plan, not an IRA.  Can I leave something to charity from that account?

A: Yes.  Friends can name us as a beneficiary of 401(k) and 403(b) plans, as well, with the same tax advantages as a gift from an IRA.  If you’re married, your spouse will need to consent to gifts from a 401(k) or 403(b) plan (but not an IRA).

Q: Can I make gifts from my IRA during my lifetime?

A: An IRA owner who has reached age 70½ can direct the custodian of the account to make outright gifts directly to charity, up to $100,000 annually, tax free.  The gifts can take the place of required minimum distributions from the IRA, saving income tax, although there is no charitable deduction allowed for IRA gifts. 

Keep in mind that you can also have your IRA pass to a charitable gift annuity or charitable remainder trust that will provide payments for life to family members.


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