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Can I use my IRA to Give My Church a Gift at Death?

Posted on Thu Dec 5, 2019, on Uncategorized

From Our “Ask a Question” Mailbag: “When I die, I want to give my church a gift. Can I use my IRA to Give My Church a Gift at Death?”

At Death, Can I Give My Church a Charitable Contribution Using My IRA

Peter Klenk, Estate Planning Lawyer.

Can I use my IRA to Give My Church a Gift at Death?

You can continue making kind gifts after your death by making a charitable gift.  Your church will need money after you go, and you can help. Donations can be made using your Will, TOD accounts, or your IRA.  Let me explain.

How Does an IRA Pass at Death?

An IRA, 401k, 403b, or any of the other qualified plans are “deals” you have made with the federal government.  The government wants you to plan for retirement. To encourage you to save, they created qualified plans.  Though they differ in subtle ways, they all have the theme of encouraging you to put money into the system, so your money grows tax-free.  Further, the plans provide creditor protection. In exchange, you promise to follow the rules. Excluding Roth IRAs, the deal includes the obligation to start taking mandatory distributions and paying back the deferred income taxes once you reach age 71.5.  Remember, the plan was saving for your retirement, not to avoid taxes forever. So you eventually take the money out and repay the “loan.”

If you die and leave the IRA to a human, the beneficiary must pay the deferred income taxes. The recipient can defer the payment somewhat, but they must pay the tax.

But, if you name a charity as beneficiary, a charity pays no income taxes.

Option One; Give the Charity the Entire IRA.

You can give your entire IRA to the charity. A 100% gift avoids all income, inheritance, and estate tax on the IRA.  If you have several IRAs, you can earmark one for your church and leave the others to your children. The advantage being, even though the IRA goes up and down in value over time, you can reasonably predict the amount going to the charity. Further, your family avoids the complexity of dealing with an IRA. They may prefer receiving $100,000 in cash rather than $100,000 of an IRA on which they still have to pay income tax.

Option Two, Give the Charity a Portion of Your IRA.

You can name any number of beneficiaries for your IRA. If it better matches your plan, you can divide your IRA in any number of ways. For example, you could give your church 50% of the IRA and divide the other 50% equally between your children.  The disadvantage of this is that if you have a specific amount, you wish to leave the church, you will need to remember to monitor the IRA’s value. As it goes up and down, you will need to adjust the percentage of your gift.

More Detail.

More options exist, such as using an IRA Trust, but these are beyond this short article. For more detailed information about IRA Trusts, see my article, “IRA Trusts Everything You Need to Know.”

In Conclusion: Can I use my IRA to Give My Church a Gift at Death?

I hope you found helpful this short article addressing the question Can I use my IRA to Give My Church a Gift at Death. I have also included some links for more detailed information. If you are curious about Estate Planning, or other various planning techniques, contact us. Let our Estate Planning lawyers help walk you through what can be a confusing process. In fact, feel free to contact our office for a free consultation.

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