Prince Law Firm
Call For A Consultation
Toll Free 866-383-1125
Local 248-419-1968

Charities as heirs

Leaving an inheritance to a favorite charity is a good intention. Like other nice intentions, however, it does not always work out. Allocating money to a charity in wills or trusts is a common estate planning mistake. Designating a charity as an heir or beneficiary in a will or revocable trust ignores tax consequences. The value of inherited holdings must be considered after taxes.

These tax consequences apply to assets passed on to family members when cash is designated for a charity. For example, the assets of an IRA are immediately taxable to the heirs regardless of whether they are distributed immediately or over time. Other assets, such as a home or after-tax savings account, are not taxable to heirs.

A better plan is to leave part of the IRA to a charity. This lowers the tax liability for family members and other heirs who can make up the loss of the IRA by receiving the tax-exempt cash that would have gone to charity. Charities are also tax exempt from any contributions made from the testator's IRA.

Tax concerns, however, do not apply to a Roth IRA or a Roth 401(k). Distributions of these assets to heirs are tax exempt. There is no reason to designate these assets to charities. An IRA beneficiary form must be filed with the brokerage firm or through an employer. It is also important to update beneficiaries after important life events like divorce, remarriage or births. A former spouse, if listed as a beneficiary, may unintentionally receive the assets of an IRA even if a person remarries.

An experienced estate attorney can draft a valid will or trust that meets a person's intentions and gets more assets to intended family members and other heirs.

No Comments

Leave a comment
Comment Information

How Can We Help You?

Bold labels are required.

Contact Information
disclaimer.

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.

close

Privacy Policy

Our Office

Prince Law Firm
800 W. Long Lake Road, Suite 200
Bloomfield Hills, MI 48302

Fax: 248-865-0640
Bloomfield Hills Law Office Map

Connect with us

  • Facebook
  • Twitter
  • Linkedin
  • Google+
VISA | Master Card | American Express | Discover Network