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Gift Ideas That Aren’t Written in Stone

Many donors want to help charity, but feel they need to maintain full control over their financial resources during life.  There are several techniques that allow donors to do that, while also providing for charity after the funds are no longer needed.

Bequests — Donors maintain full control of their assets and the right to make changes to gifts through wills and living trusts.

Financial accounts — It’s possible to leave financial account proceeds to charity without making or changing a will.  During the owner’s lifetime, the organization has no rights to the funds.  Ask the manager of the financial institution for the form necessary to name a beneficiary.

Retirement accounts — Naming charity as the death beneficiary of a retirement plan completely avoids the income tax that would be owed by family members.

Life insurance — Charity can be named to receive part or all of the proceeds of a life insurance policy.  Just ask the company for a beneficiary form.

Retirement Plans 101

  • Virtually all wage earners may place funds into IRAs, currently up to $5,500 per year.  Deductions are available for workers not covered by other employer retirement plans or those below certain incomes.  These plans provide a current shelter for the income earned on your retirement funds, but savings are fully taxed when withdrawn.

  • Many company-sponsored retirement plans permit employees to roll over their savings into an IRA – without owing taxes – when they change jobs or end their careers.  The rollover IRA allows further tax deferral, and no withdrawals are required until the year after the person reaches age 70½.

  • Contributions to a Roth IRA or Roth 401(k) plan are not deductible, but withdrawals will not be taxed if the funds remain in the account for more than five years and are made after age 59½, or for the purchase of a first home.  Unlike regular IRAs, withdrawals are not required to begin after age 70½.

  • A standard table governs how much you must withdraw from a traditional IRA each year after age 70½.  A special table applies if you name a spouse who is more than ten years younger as beneficiary.

  • Except for Roth IRAs, retirement accounts are generally subject to income taxes at death.

All income taxes and estate taxes (taxes apply to estates exceeding $5.49 million in 2017) are avoided when charity is named the death beneficiary of an IRA.

Starting Grandkids Out Right Financially

Your granddaughter is working as a lifeguard this summer and in a card shop on weekends during the school year.  She expects to earn nearly $4,000 this year.  She could use the money to fund an IRA, but it’s not likely.  That’s where a grandparent (or parent) can help.  You can offer to make the teenager’s IRA contribution, giving a gift that will reap generous rewards decades from now.

The deduction available for a contribution to a traditional IRA is not of much value to someone with modest income, making a Roth IRA more attractive.  Although there is no income tax deduction, all qualified withdrawals in the future will be tax-free.  The Roth IRA can even be tapped tax-free to help pay for a first home.  Best of all, however, is the example of saving for the future that you'll set for the grandchild.

No Comparison to Having an Estate Plan

Is having an estate plan really all that important?  Consider a brother and sister, Larry and Mary, each married with two children.  Let’s compare how Larry, who “hasn’t gotten around” to planning his estate, fares compared to Mary, who has established a thoughtful estate plan.



How assets pass at death

Any assets he owns jointly with his wife pass automatically to her.  Other assets pass under his home state’s laws for those dying without wills.  Those laws may give his wife only one-half or one-third of his estate, with the rest passing to his children and possibly even his parents.


Her assets pass under the terms of her will or living trust, as she wishes.  She can direct more to a child who needs special assistance and also take advantage of tax-saving strategies, such as a marital trust and a family trust, to give her husband the maximum benefits while sheltering the estate at his death.

Estate tax consequences

Assets passing to his wife are sheltered from estate tax by the marital deduction. If assets passing to other heirs exceed $5.49 million in 2017, they could be subject to tax at a 40% rate.  At his wife’s death, she may be taxed on any amount not sheltered by the credit, unless she elects portability.


Her estate has been planned with her husband’s, allowing both to take full advantage of the estate tax credit.  If the value of her estate grows, she can make adjustments to keep up with the credit, which is indexed annually for inflation.

If spouse dies first

Jointly owned assets will pass to him free of estate tax, but at his subsequent death, he will not have the advantage of the marital deduction (absent remarriage).


The couple’s estate plan allows her husband to pass some assets estate tax free to their family.  A trust can pay Mary all the income for life, with the assets eventually passing to their children outside her estate.

Remembering special friends and charity

There is no provision under state laws for making bequests to close friends or charities in the absence of a will.


She can make specific gifts of particular assets or sums of money to friends or charities.  She can even create gifts that reserve payments for life for loved ones and eventually benefit charity.

Having a thoughtful estate plan is smart not only from a tax perspective, but also as a means of assuring your loved ones and favorite charities are financially secure.  If you don’t already have an up-to-date estate plan, make an appointment with your attorney to have a will or living trust drafted.


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