Bequest Substitute
A written statement in a will is the most common bequest format. However, other gift arrangements also allow a gift to be made to charity upon the death of the donor. The advantage of these other techniques is that the gift to charity avoids the time delay of probate.
Revocable TrustsMany individuals include bequest provisions for a charity in their revocable inter vivos or "living" trusts. These trusts are advocated by some as a mechanism to avoid the probate process that is required for the disposition of wills. This avoids the costs and public scrutiny of probate. Further, trusts allow for the management of the trust assets by a trustee when the beneficiaries of the trust are considered incapable of effective management.
Life InsuranceA charity may be named the beneficiary for a newly issued life insurance policy (depending on applicable state law) or an existing policy. The donor can enjoy a lifetime income tax charitable deduction, however, only by making a complete and irrevocable assignment of ownership in the policy to charity.
Retirement Plans and IRA AssetsA charity (or a charitable remainder trust) may be named as beneficiary for all or a portion of a qualified retirement plan or an IRA. Such a gift has two significant tax benefits. First, the amount received by charity qualifies for the unlimited estate tax charitable deduction. Also, the charity will receive the assets without the imposition of the income tax that had been deferred.
If retirement plans and/or IRA assets are given to children or others as beneficiaries, then the heirs of such assets will owe the income tax which had been deferred during the donors lifetime. As such, these assets are considered "income in respect of a decedent" (IRD).
Uniform Transfer on Death Securities ActNearly every state (except Louisiana and Texas) allows automatic transfer on death ("TOD") of stocks, bonds and mutual fund shares to charities outside the operation of a will.
Payment on Death (POD) AccountMany states allow a donor to designate a charity to receive the proceeds from a bank account (e.g., checking, savings, certificate of deposit, etc.) upon the death of the donor. A POD designation is revocable and the distribution avoids the probate process.
Qualified Disclaimers by an Individual HeirHeirs to an estate may disclaim all or a portion of their inheritance or bequest, allowing these funds to be directed to a charity instead. Such disclaimers must comply with the applicable state law as to the form and timing.
Testamentary Power of AppointmentThe executor of an estate or another person, by the terms of the will, may be granted the ability to appoint distributions from an estate to others, including charities. The power of appointment must be provided for in the will and comply with applicable state law as to the form and timing.
Remainder Interest in Farm or Personal ResidenceA donor may transfer by deed a remainder interest in a personal residence or farm to a charity while retaining a life estate interest. This remainder interest would pass automatically to the charity upon the death of the donor. This effectively avoids the probate process.
Revocable TrustsMany individuals include bequest provisions for a charity in their revocable inter vivos or "living" trusts. These trusts are advocated by some as a mechanism to avoid the probate process that is required for the disposition of wills. This avoids the costs and public scrutiny of probate. Further, trusts allow for the management of the trust assets by a trustee when the beneficiaries of the trust are considered incapable of effective management.
Life InsuranceA charity may be named the beneficiary for a newly issued life insurance policy (depending on applicable state law) or an existing policy. The donor can enjoy a lifetime income tax charitable deduction, however, only by making a complete and irrevocable assignment of ownership in the policy to charity.
Retirement Plans and IRA AssetsA charity (or a charitable remainder trust) may be named as beneficiary for all or a portion of a qualified retirement plan or an IRA. Such a gift has two significant tax benefits. First, the amount received by charity qualifies for the unlimited estate tax charitable deduction. Also, the charity will receive the assets without the imposition of the income tax that had been deferred.
If retirement plans and/or IRA assets are given to children or others as beneficiaries, then the heirs of such assets will owe the income tax which had been deferred during the donors lifetime. As such, these assets are considered "income in respect of a decedent" (IRD).
Uniform Transfer on Death Securities ActNearly every state (except Louisiana and Texas) allows automatic transfer on death ("TOD") of stocks, bonds and mutual fund shares to charities outside the operation of a will.
Payment on Death (POD) AccountMany states allow a donor to designate a charity to receive the proceeds from a bank account (e.g., checking, savings, certificate of deposit, etc.) upon the death of the donor. A POD designation is revocable and the distribution avoids the probate process.
Qualified Disclaimers by an Individual HeirHeirs to an estate may disclaim all or a portion of their inheritance or bequest, allowing these funds to be directed to a charity instead. Such disclaimers must comply with the applicable state law as to the form and timing.
Testamentary Power of AppointmentThe executor of an estate or another person, by the terms of the will, may be granted the ability to appoint distributions from an estate to others, including charities. The power of appointment must be provided for in the will and comply with applicable state law as to the form and timing.
Remainder Interest in Farm or Personal ResidenceA donor may transfer by deed a remainder interest in a personal residence or farm to a charity while retaining a life estate interest. This remainder interest would pass automatically to the charity upon the death of the donor. This effectively avoids the probate process.
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