Charitable Estate Planning
Retirement Assets

[Photo of Leonard Slatkin conducting.]Retirement plan assets can be heavily taxed if left to heirs. Most inherited assets are subject to estate tax, yet free from income tax. However, an heir will pay income tax on amounts received from a decedent's retirement plan (profit sharing plan, 401(k), 403(b), IRA, etc.). Estate and income taxes can exceed 75% or more of the total amount in the retirement plan. A charitable bequest avoids these heavy taxes.

When we do our estate planning we are confronted with the question, "what am I going to do with any assets remaining in my retirement plan at death?" Possible answers include:

  • The income is to continue to my spouse or someone else for their lifetime
  • Remaining assets are to go to my estate and be distributed via my will
  • Whatever remains is a bequest to certain individuals
  • Whatever remains, or a portion of it, passes to one or more nonprofit organizations

Why give retirement plan assets to the Kennedy Center?
To fulfill a desire to make a major contribution to the Kennedy Center. It may be that your retirement plans contain a large portion of your net worth and that it would be the only way you could make a donation of the amount you have in mind.

To reduce your taxable estate. Assets passing from retirement plans to qualified nonprofit organizations like The John F. Kennedy Center for the Performing Arts are entirely removed from your taxable estate. This can potentially save your estate thousands of dollars in taxes.

To avoid an income tax that would otherwise be due. When retirement plan assets pass to heirs they are subject to federal income tax as well as the federal estate tax. While there is some credit allowed to partially avoid double taxation, the cumulative effect of both taxes can reduce the amount that eventually ends up with your heirs by as much as 75%!

If you are considering making gifts to nonprofit organizations as well as to your heirs, you would be wise to give retirement plan assets to charity and other investments to your heirs.

How to give retirement plan assets to the Kennedy Center:
There is more than one way to make such a gift. Which is best for you depends on your individual circumstances. You are well advised to discuss it with your accountant or other advisor before making a decision on this matter.

Outright Gift
If you want whatever remains in your retirement account to pass to the Kennedy Center at your death, simply ask the plan administrator for the appropriate form needed to do this. You then indicate how you wish the remainder to be distributed. If you do name The John F. Kennedy Center for the Performing Arts as a beneficiary, please send us a copy of the form, which we will retain for our records.

Gift in Trust
You may wish your surviving heirs to enjoy the income from your retirement plan before anything passes to the Kennedy Center. In that case, you could establish a charitable remainder trust and have the retirement plan assets transferred at your death to the trust. The Trust will make regular payments to the person(s) you designate. These payments will continue either for their lifetimes or for a term of years after your death. That is your decision. Then, whatever remains in the trust passes to the Kennedy Center. This strategy avoids the income tax that would otherwise be due, and partially avoids the federal estate tax.

A Lifetime Alternative
Another option is to remove assets from the retirement plan while you are living and transfer them to a charitable life-income plan. You name yourself as the income recipient and the Kennedy Center eventually gets the remainder. While you must pay income tax when you withdraw the money from the plan, you also are entitled to an income tax charitable deduction for establishing the life-income arrangement. It may be that the life-income arrangement can provide you with more income than the retirement plan, and you remove the asset from your taxable estate.