Many people have a large percentage of their wealth in the form of traditional IRA accounts. If you are considering including charities in your estate plan, there is a tax-saving strategy you should know about. When you designate a charity, such as Suncoast Hospice Foundation, as a beneficiary of your IRAs, then you may leave other assets to family members or other heirs.
Why? The taxable portion of the IRA balance (often the entire amount) will be taxable as income to your heirs when they make withdrawals. If you live in a state where there is state income tax, then state income tax will be owed on IRA withdrawals as well. After all of these taxes have been paid, your heirs may receive only a very small fraction of your IRA money while tax collectors get the lion’s share.
A tax-smart solution is to leave some or all of your IRA money to a tax-exempt charity like Suncoast Hospice Foundation, while leaving other assets to your heirs. When Suncoast Hospice Foundation withdraws from the IRA, it does not have to pay income tax (but your heirs would).
If you are planning to make bequests to your loved ones, you can leave gifts of assets that are eligible for the federal income tax basis “step-up” to fair market value, as of the date of your death. These include common stocks and mutual fund shares held in taxable investment accounts, ownership interests in your small business, real estate and just about anything else that qualifies for capital gain treatment when it is sold. Thanks to the basis step-up break, these assets can be sold by your heirs with little or no income tax.
Please contact Planned Giving Director Karen Van De Putte at (727) 523-3422 if you would like to discuss this option further. You can also talk with your IRA administrator.