Consider Naming TWCVV as a Beneficiary of an IRA

Special thanks to Guest Blogger and Board member Ken Kossoff for contributing this article. Ken is a certified Specialist in Estate Planning, Probate & Trust Law by the State Bar of California Board of Legal Specialization.

Naming The Wellness Community Valley/Ventura (TWCVV) as a beneficiary on a retirement account can be a win-win situation - benefiting both TWCVV and the family of the account holder.

Individual Retirement Accounts (IRAs) are a great way to save for retirement: (a) taxes are deferred on earnings – hopefully there are earnings, in spite of market gyrations, over the lengthy period of time that most people accumulate their retirement savings; and (b) income tax is paid by the person who created the IRA only on the amount of the distributions that are taken out of the IRAs. Thus, most people think it is best to take out as little as possible, meaning they do not take distributions until they are forced to, and even then, they take only minimum distributions.

The problem with minimum distributions is that retirement accounts were really created by the government to encourage people to save for retirement. They were not created to pass to the next generation, but by taking only minimum distributions, many people leave retirement accounts with substantial savings to their surviving family members.

Regardless of whether the funds in an IRA are taken out by the person who created and funded the account or their after-death beneficiaries, income tax will have to be paid on the amounts withdrawn.

Moreover, if the account holder's estate is subject to estate taxes, the beneficiaries of the IRA can end up losing 70% to 80% in taxes. That means that for taxable estates, the beneficiaries of IRAs will get only pennies on the dollar. While there is no estate tax in 2010, in 2011, any estate over $1,000,000 is taxable at rates starting at 55%.

The only exception to paying income taxes on IRA proceeds is a donation to a qualified non-profit organization like TWCVV. If TWCVV is named as a beneficiary of your IRA, TWCVV would pay no income taxes on the IRA proceeds. At the same time, your family could get a valuable tax deduction – check with your CPA or other tax advisors on whether you would get the valuable tax benefits that are available to many taxpayers.

Thus, for someone who supports the mission and work of TWCVV, even in the absence of tax deductions, naming TWCVV as the beneficiary of your IRA can be far more valuable to the organization than it would be to your family, because TWCVV would get 100 cents on the dollar – far more than your family would get even in the best of circumstances.

Last year, there was an exception that allowed people to give their IRAs to qualified charities such as TWCVV during their life, without having to pay income tax on the proceeds before contributing them to a charity. While that tremendous benefit expired, Congress is in the midst of negotiating an extension of that law to December 31, 2010. If that happens, we will let you know.

To learn more, please contact Suzanne Drace at 805.371.0417.

Learn ten more ways to leave a legacy of hope through Planned Giving.