June 19, 2014

Are you thinking about making a gift to a charity on your death? It might be a better option to instead consider gifting your retirement account, and there are a few different reasons for this. This can help to maximize the tax benefits for your estate, but also for the individual heirs benefitting from your estate.

(Photo Credit: bloomberg.com)

As of now, assets above the value of $5,340,000 that are outright transferred from a taxable estate are hit with a 40% tax, even though the individuals who receive those assets don’t have income taxes also taken out of that amount. There is, however, an exception to this, and it’s for IRAs, 401ks, and qualified retirement plans. They are categorized as ordinary income as distributions since the government has not yet taxed this money.

Gifts to charity are not subjected to the estate tax and are at the same time excluded from the taxable estate. The amount gifted to the charity can be deducted from your federal estate tax return to reduce your overall estate beneath the $5,340,000 referenced above. When done properly, this could mean that little or no federal estate tax is due upon your death, therefore meeting your goals of gifting charitably and maximizing the value of your assets for your beneficiaries.

To learn more about charitable giving and other strategies to accomplish estate planning goals, send us a message at info@lawesq.net or contact us via phone at 732-521-9455 to get started.