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When Passing Assets to Loved Ones Doesn't Pay

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More than likely, a substantial portion of your savings is in your retirement plan. As you plan your estate, you may be considering how to use those savings to benefit loved ones. But did you know that your most valuable assets may also constitute the biggest tax bill for your heirs?

Reality Check
A national research study shows that more than half of Americans aged 30 and older are largely unfamiliar with the way in which taxes can eat up the value of their retirement accounts when they name a loved one as beneficiary.

FACT: Income and estate taxes can consume more than 60 percent of retirement plan funds when inherited by a loved one.

While the majority of people will pay less than 40 percent, anyone who inherits retirement plan funds will be subject to income tax on all withdrawals. Although there are ways in which spouses (as defined by the IRS), and to a lesser extent other loved ones can defer taxes on these assets when they defer receipt of the funds, they, too, are subject to income tax when they make withdrawals.


A Win-Win Alternative
An estate planner can help you structure the inheritance so family members pay the least taxes. Experts sometimes advise putting a charitable component into the plan because qualified charitable organizations, like Tallahassee Memorial HealthCare Foundation, Inc., receive donations tax-free. Unlike family members, we receive the full value of your retirement plan assets—none is lost to taxes. Plus you can rest easy knowing you can change your mind at any time up until your death.

eBrochures
Learn more about making tax-wise charitable gifts of retirement plan assets in our free guide.

Two Tax-Savvy Options for Leaving Your Assets Behind
  • If you're determined to eliminate taxes altogether on your retirement plan assets, you could leave them to Tallahassee Memorial HealthCare Foundation, Inc. and build an inheritance for your loved ones from other less-taxed assets such as life insurance or property.
  • If much of your nest egg is tied up in a retirement plan, you may have little else to leave to family. In that instance, a more reasonable alternative may be to designate a percentage of your retirement plan accounts to us, thus taking greater control over how the funds in these accounts will be used while still providing for loved ones.
We would be happy to assist you in your planning. Contact Paula S. Fortunas at 850-431-5752 or paula.fortunas@tmh.org.

Question MarkWhat Will the Kids Think?
New research reveals how your loved ones really feel about sharing a piece of their inheritance with a nonprofit. Of the adults surveyed, 72 percent feel it's reasonable for you to designate 5 to 10 percent to charity. Please keep that in mind when you are making your plans for the future. Even a small percentage can make a significant impact at our organization.

Source: "2009 Stelter Donor Insight Report"



Copyright © The Stelter Company, All rights reserved.

The information on this website is not intended as legal or tax advice. For legal or tax advice, please consult an attorney. Figures cited in examples are for hypothetical purposes only and are subject to change. References to estate and income taxes apply to federal taxes only. State income/estate taxes or state law may impact your results.