If you are charitably inclined and choose to leave a legacy gift to your favorite charity, here's question: Is it better to leave a portion (or all) of an IRA (or your 401K) or simply a portion of your after tax assets to charity? Pay attention. This is close to a no-brainer...
You will receive the same deduction for estate tax purposes, but if you are leaving an IRA account instead of other after-tax assets to your heirs, they will be much happier if you give the IRA to charity rather than your other assets.
Remember, that when a non-spousal beneficiary inherits an IRA, they have to take all of the pre-tax money out of the inherited IRA (and pay taxes on it!) within 10 years. No matter which income tax bracket your heirs are in, they will have to pay taxes on the IRA withdrawals each year, reducing the benefit of your gift. For example, if your children are in the highest marginal tax bracket, they'll pay 37% in taxes on each withdrawal.
Other non-IRA assets in your estate will receive a step up in basis and can be retained without income tax consequences for as long as your heirs desire. Bottom line is by gifting IRA assets rather than other assets, there’s the same amount for charity and more for you heirs! In the proper circumstances, this can be a significant boost in your heirs inheritance.
If you'd like to develop a better understanding of how this technique could work for you, we're just a phone call away. Book a discovery call today.