Estate Planning is Stewardship
Retirement Assets
Your largest asset may be your retirement plan - your 401(k), 403(b), IRA, Keough, or other such accounts. When you plan your estate, it may seem natural to automatically designate a child or other relative as the successor beneficiary of the account after your death, while using other assets to make a charitable gift.
But using assets in this manner can create an undue tax burden. Not only are the assets in your retirement account subject to estate tax, but when received by an individual the balance in the account is also subject to income tax. There is the potential of up to 75% of the account value being consumed by taxes if left for the benefit of your child, relative or friend.
As an alternative, name the Foundation as the beneficiary of your retirement plan, and use your other assets that are not subject to income tax to make gifts to your heirs.
The Foundation is a non-profit organization and does not pay income tax on the distribution (nor will the gift be subject to estate tax). Meanwhile your heirs will receive other assets of your estate without the extra income tax burden.
Remember, distributions from your retirement account may be used to fund or to fund a charitable remainder trust or gift annuity that pays income to your heirs.
Example
The Smiths from Lake Charles had established their estate plans to include Baptist ministries as the primary beneficiary. Their plans included naming the Louisiana Baptist Foundation as contingent beneficiary of their Individual Retirement Accounts. In other words the Foundation receives the balance in the IRA if the account's owner predeceases the primary beneficiary, in most cases the spouse.
Mr. Smith predeceased Mrs. Smith which meant she had the benefit of the proceeds from his IRA. Upon her death the Foundation received the balance of her IRA. Because these assets are paid by contract from the IRA custodian (the assets do not pass through probate) the proceeds from Mrs. Smith's IRA were in an account at the Foundation long before the remainder of the estate was settled, earning income for Louisiana College and the Louisiana Baptist Children's Home.
