Easier Now to Name Charity a Death Beneficiary of Retirement Accounts

Easier Now to Name Charity a Death Beneficiary of Retirement Accounts

REVISED: Simplified retirement account distribution rules now allow donors to name charities or charitable trusts as death beneficiary of part or all of their savings without fear of exhausting the account prematurely.

Account owners will calculate how much to take out each year according to a uniform table (the applicable distribution period) that assumes a joint life expectancy with a survivor beneficiary who is ten years younger. The death beneficiary can be changed at any time, including after death. Taxpayers may rely on the proposed regulations immediately and restructure their 2001 payments – even if they have been making withdrawals for many years under a different schedule.

Under prior law, naming a charity, or charitable trust, as a death beneficiary of an IRA or other retirement account could force donors into accelerated distributions. Result? The account might be emptied out by the time the charity received anything. Under the new rules, making a charity a beneficiary will not increase the amounts that must be withdrawn annually.

Donors now can name a charity as beneficiary of part or all of their IRAs without increasing annual distributions during life. A charity that is a co-beneficiary of a retirement account could cash out of the arrangement after the donor’s death, permitting the other beneficiaries to use their own life expectancies to calculate future distributions.

It should be more attractive to name charitable remainder trusts to receive IRA proceeds at death. The trust will generate an estate tax charitable deduction and will not be depleted by IRD tax. Under prior law, naming the charitable remainder trust as beneficiary sped up distributions during the donor’s life.

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