The Carthage Community Foundation continues to receive a number of generous gifts. After spending the last two years getting the board and the Foundation up and running, and in obtaining initial contributions, we will soon be ready to make grants to community organizations. Specifics regarding the grant making process will appear in later editions of the Press. In the meantime, this article will describe a tried and true estate planning technique that not only helps a charitable group like the Carthage Community Foundation but the donor and donor's family as well.
The traditional Individual Retirement Account (not the Roth IRA) as well as pension plans, hold substantial amounts of wealth for many families. While there are numerous benefits to an IRA, it must be remembered that these investments defer but do not eliminate taxes Eventually the piper must be paid. Not only will the day come when income taxes must be paid, but because an IRA asset is part of your taxable estate, inheritance taxes must also be paid at the time of the owner's death.
Most of us are familiar with the IRA minimum distribution rule. The rule requires each IRA owner to begin taking taxable withdrawals from their IRA once they reach age 70 ½. (It uses a formula only an accountant could love). These same minimum distributions are required of your heirs following your death. In other words, on your death your heirs must begin paying income taxes over a period not exceeding their life expectancy. Additionally, the IRA benefits are subject to estate tax.
One way to eliminate these income and estate taxes is to designate the Carthage Community Foundation as your on death beneficiary. Because all tax is eliminated when naming a charity as death beneficiary on an IRA, the actual cost of making the gift is substantially less than the face amount of the IRA. For example, assume you have a $100,000 IRA that is fully subject to estate tax. Because of the estate and income taxes that would apply, your heirs would only receive between $25,000 and $30,000. However, if the designated beneficiary is the Carthage Community Foundation, no income or estate taxes are due. The Carthage Community Foundation would receive the full $100,000 and the net cost to your heirs would be $25,000 to $30,000.
Naming the Carthage Community Foundation as a death beneficiary on your IRA or pension plan, is an alternative worth considering. As always, speak with your financial advisers and tax professionals before embarking on any such project.
If any of the board members of the Carthage Community Foundation can be of service to discuss this or other giving technique, feel free to call us at our offices or homes or at the Carthage Community Foundation Office, 417-359-5534.
This article was written by Kevin Checkett, a founder and director of the Carthage Community Foundation, and was originally published in the Carthage Press Newspaper.
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