Gift of IRA
For many, money accumulated through the years in retirement plans represents a significant percentage of their total assets. Even with the minimum distribution rules for mandatory withdrawal, many of these plans will still have large balances at the death of the owners.
People are often very surprised to discover that assets they thought would simply pass to heirs from their qualified retirement account are the most heavily taxed assets in their estate. A combination of estate taxes, income taxes and generation-skipping transfer taxes can consume nearly 80% of a retirement plan account. There are ways to avoid, or significantly reduce, these taxes.
If you are interested in supporting Michigan through a bequest, a qualified retirement plan or IRA may be the best asset to designate to the University. If you make the University the beneficiary of your retirement plan, you would eliminate the income tax, generation-skipping transfer tax, and the estate tax on the funds in the plan. The University would receive 100% of the retirement assets; by contrast, if you left these same assets directly to heirs, they may receive as little as 20%. Even with the 1997 repeal of the 15% excise tax on retirement accounts they remain the most heavily taxed asset in your estate.
If you wish to benefit your heirs before transferring your assets to charity, you may designate a testamentary charitable remainder trust as beneficiary of your IRA or other qualified retirement plan. Upon your death, the plan balance will be distributed to a charitable remainder trust which will pay income to your heirs for their lifetimes, or for a period of years. Upon their deaths, or when the trust term is completed, the remaining trust principal will be transferred to the University. With this strategy some income tax is avoided, the estate tax is reduced, heirs may enjoy a greater percentage of the proceeds, and you have provided a substantial gift to the University.
To learn more about gift of IRA and other planned giving opportunities, please visit the University of Michigan planned giving web site by clicking here.