Doing the Right Thing with an Often “Overlooked” Asset

by Scott Blakesley

We all work hard for most of our adult lives earning a living and setting aside funds for those anticipated retirement years. If we are disciplined enough and the markets cooperate, we will accumulate
sufficient financial resources to enable us to enjoy our later years doing all those pleasant things we will finally have time for.

If we could see into the future, we could predict all we would need during life and spend the last dollar on our last day (at least I know many of my clients have this goal). In the real world we cannot predict the future, so we continue to maintain a portion of our retirement funds for those upcoming years when they may be needed. In most situations, this means there will be amounts (sometimes significant amounts) remaining in our retirement accounts at death.

Even though our own mortality is a subject we would prefer not to consider, one of the important steps involved with owning a retirement account is to plan for what will happen to it at our death. Many of us don’t spend enough time thinking about this subject, and in many situations we may have a beneficiary designation that is significantly out of date with our current planning goals.

If you have a spouse and/or young children, the decision is fairly easy. You will generally want to ensure that your remaining retirement account balances are available to your family members for their support after you are gone. However, once your children are grown and have developed financial resources of their own (or if you have no children), additional considerations may impact the way you arrange for the future payment of your retirement accounts.

Most of us have charitable and community efforts we support on a regular basis, and often wish we could do more to assist these worthy causes. However, in planning for the disposition of our assets at death, we generally fail to consider how we might allocate a portion of our resources to include the charities we have faithfully supported during lifetime.

Through intentional planning for the future disposition of your retirement accounts, you have a unique opportunity to make a difference in the community by including your favorite charities as beneficiaries of part or all of your retirement accounts—especially if you have no surviving spouse and your children have long ago become responsible and resourceful adults (or you have no children). Further-more, because of the tax laws applicable to retirement accounts, you can accomplish these desirable results with only a modest “cost” to your children or other contingent beneficiaries.

Remember that the balance in your retirement account will be subject to income tax when withdrawn (by you or your named beneficiaries). In addition, the value of your retirement account at death is included in the value of your assets for purposes of determining the amount of the estate tax. The combined income and estate tax cost of leaving retirement dollars to your children can be as high as 70 percent. Looked at another way, for every dollar of your retirement account left to charity at your death, the “cost” to your children is about 30 cents. This is a relatively small price to pay for your ability
to provide a financial benefit to the charities you want to support.

Using your retirement account to accomplish your charitable intentions is not only tax efficient, it is also quite easy. Although you will want to discuss these matters with your estate planning attorney, you can
usually make provisions for the disposition of your retirement account at death without elaborate legal documentation. In ad-dition, including one or more charities as beneficiaries of your retirement accounts will not affect the timing of distributions
to you or your spouse during your lifetimes.

So don’t waste an opportunity to carefully plan for an important but often overlooked asset. Carefully consider if it makes sense to include charity as part of your planning alternatives, and then make some intentional decisions about what should happen to your retirement accounts when your retirement years have passed.

 

Scott Blakesley is a partner withBlackwell Sanders Peper Martin.He can be reached by phoneat 816.983.8138 or by email atsblakesley@blackwellsanders.com.