Wealth Management & Financial Planning

Wealth Management & Financial Planning

Legacy Gifting Explained

As we approach the holiday season, many of you will experience the joy of giving a gift. For a child, receiving a new favorite toy is always very exciting. When we mature, most of us will realize that giving a thoughtful and purposeful gift can bring you greater joy than being the recipient of such a gift.

If you have been blessed with the resources to support yourself, your family, and others, note that you can consider several strategies to make your gift go further, often by being smarter with when and how your gift could be taxed.

Gift of IRA Assets

Let me paint a picture for you of how you might gift IRA assets to a church. Let's say you have $1,000,000 in an IRA account. Keep in mind that these IRA dollars have never been taxed. If you give those pre-tax dollars to an individual heir, your heir will be obligated to continue the Required Minimum Distributions you were taking every year. In addition, all of the IRA dollars must be distributed to that heir within ten years of the date of your passing. If your heir is still working and earning an income, this can result in a higher marginal tax bracket, and those dollars will be taxed at a higher rate. Often the difference is 12% to 22%, or even 24% to 32%. We have seen this in our practice, and we want to avoid those tax headaches for your heirs through proper planning.

In our scenario, you have done the proper planning. Your heirs will inherit other assets or no assets if that is your wish. Your Financial Plan provides you with a comfortable income in retirement, and part of that plan leaves your IRA to your church as the beneficiary. These IRA assets were intentionally NOT spent down excessively or converted in order to provide this gift. After the good Lord calls you home, your beneficiary designation is fulfilled, and the church receives your $1,000,000 gift.

As a 501(c)(3) organization, your church has no Required Minimum Distribution and pays no taxes on your IRA. Your church is able to use the funds immediately to fulfill your legacy gifting goal, such as funding a ministry program, supporting a new missionary, or funding a new building project.

Giving with a Will or Trust

If you do not have a beneficiary designated or name a Trust as a beneficiary, your giving will be dictated by a Will or Trust you create. Let's start with a Will. A Will is designed to direct all your assets that do not have a beneficiary designation on them. This most obviously would include valuable items inside your home or the proceeds of an estate sale of those items. You can include language in your Will to direct those proceeds toward a church or charity.

While this can accomplish your goal, the drawback is that it must first go through the probate process, which can cost anywhere from 2%-4% to pay attorney and administration costs before anything can be distributed to an heir or charity.

A more expensive but potentially better way is to place assets inside a Trust. A Trust entails no probate administration costs, and you have more control over the assets, including placing restrictions on when and how they are distributed to the church or charity.

It could be that your Trust is a Charitable Remainder Trust, one of the many available Trust options. This type of Trust is irrevocable, which importantly means once you create and fund the Trust, the assets you placed inside it cannot be modified without the permission of the beneficiary. You can, however, receive income from the Trust while you are alive, and the “Remainder” portion of the title means that once you pass, the church or charity gets the remaining balance of the Trust.

Leaving a Legacy provides an opportunity for you to make a difference. Two such Trust opportunities are highlighted here, but additional options are available. If leaving a Legacy for a cause about which you are passionate is your desire, we can help you work through the best way to achieve your goals. I am passionate about giving as well and feel called to give back to the Lord a portion of the blessings He has bestowed on me. Legacy decisions must be part of a larger, comprehensive Financial Plan. We at Financial Enhancement Group serve many like-minded families and would be honored to serve you as well.

Financial Enhancement Group is an SEC Registered Investment Advisor. 

Want to sign up to receive the Market Carver?

Schedule a "Next Steps" Meeting

If you request a “Next Steps” meeting, we will discuss with you things you should do today, things to consider tomorrow, and if we choose to partner together… a written plan on what Financial Enhancement Group can do to help meet your goals.

Receive Our Free weekly Market Update Video

The FEG team regularly shares pertinent financial information to help educate our friends and families on what’s happening in the market, as well as information on financial planning. Fill out the form below to be added to our list for distribution.

Access all of our checklists!