Pension plans and IRAs frequently grow more rapidly than any of the other assets we own. The plans are funded with pre-tax dollars; there is tax-free growth until retirement, and the size of many accounts are expected to continue growing through retirement, in spite of minimum distribution requirements.

One of the best estate planning strategies is to use these assets to accomplish your charitable goals. Even with the phase out of estate taxes, it is nevertheless true that individual recipients of pension and IRA assets will continue to pay income taxes when they receive these funds. As you create your estate plan, evaluate whether there may be other no-tax assets (such as appreciated securities or real estate that step-up in basis) that you can provide for family and friends, and then use your IRA and pension assets for ministry.

Bequests to Charity – As the Primary Beneficiary
Consider these steps for using your IRA or pension plan for making your bequest to ministry:
 

• Your bequest can be made from either the total amount or from a percentage of the IRA or pension account. This distribution can be made directly to ministry from the account Trustee, or through your will.
• Direct transfers from your IRA or pension account Trustee are established by using a Beneficiary Designation Form and naming a ministry or ministries as your primary beneficiary (ies).
• Be sure to use the right wording in your will - To ensure that your goal to first use IRA and pension account assets for charitable gifts is accomplished, wording similar to the following should be included in your will: “All charitable gifts will first be funded with the right to receive any property which would be taxed as income in respect of a decedent if any such right is received by the Estate/Trust.”

Bequests to Charity as Contingent Beneficiary - First to Spouse and then to Charity

Another common plan is to transfer the IRA to a surviving spouse, and then, upon the death of the surviving spouse, to a ministry. The surviving spouse is listed on a beneficiary designation form as the primary beneficiary and then a ministry is listed as a contingent beneficiary. The surviving spouse may choose to remain the designated beneficiary and receive payments when the deceased spouse would have been 70 ½ or to roll the balances over into their own IRA. (If the spouse rolls the balance to their account, a new beneficiary designation form must be completed to designate the ministry as a beneficiary). Upon the death of the spouse, the remaining IRA balances may then be distributed to the designated ministry (ies).

Testamentary Unitrust and Charity

A third alternative is for the spouse who owns the IRA/Pension account to designate a testamentary unitrust as the beneficiary. This trust is exempt from both income and estate tax through a combination of charitable and marital deductions and pays income to the surviving spouse for life. Once again, when the second spouse passes away, the testamentary trust principal is distributed to a designated charity, without payment of any income tax on this amount. In many cases, this plan will achieve a better benefit for both the spouse and the charity, since it maintains the tax-free accumulation at a higher level for the benefit of the surviving spouse.

Other Strategies Available – Please Contact Us!
 

• Insurance plus Testamentary Unitrust
• QTIP and Charity
• Insurance Plus Bequest
• Withdrawal Plus Two Trusts
• Stretch Unitrust

For further information and assistance, please contact Diane Arndt or Steve Hoffman of our Gift and Estate Design services team.

Phone: 1-317-881-6755 ext. 334 (Diane Arndt)

E-mail: shoffman@omsinternational.org, or darndt@omsinternational.org

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