How You Can Help Educate Leaders For Our Changing World
	The Annual Fund
	Planned Giving

Individual Retirement Accounts and other forms of deferred compensation are very efficient wealth accumulation devices. They are usually funded with tax-deferred income and grow tax-free. But they can be wealth transference disasters. In other words, your hard-earned retirement nest egg may not make it to your heirs unscrambled. Estates subject to estate tax have the most to lose, and individuals with estates under $625,000 in total value, and so not subject to estate tax, do not escape the problem entirely.

Recently a Bay Area man died, leaving an estate of $600,000. The major assets in his estate were roughly divided between a $300,000 home and a $300,000 IRA. He left his home to charity and his IRA to a few relatives, exactly the opposite of what he should have done. Income tax was due on the $300,000 IRA. If he had left the home to his relatives and the IRA to charity, neither the charity nor his relatives would have suffered any tax loss. The lesson for people who are philanthropically inclined and have IRAs is clear: leaving IRA principal, often the most tax-vulnerable asset in their estate, to charity may cost other beneficiaries less than leaving other assets to charity.

There's one estate planning strategy that may ease the problem substantially: the transfer of IRA principal to a testamentary charitable remainder trust, that is, a trust that goes into effect at the death of the IRA owner of his or her surviving spouse. Instead of passing directly to heirs at death, the IRA passes to a charitable remainder trust with the heirs named as income beneficiaries, either for life or a term of years.

It is crucial to keep in mind that this must be a testamentary charity trust. Transfer of IRA principal to a charitable remainder trust during life triggers income tax. At death, however, the IRA can be safely moved to a charitable trust without income tax.

Determining whether a direct contribution of IRA principal to charity or the use of a testamentary charitable trust fits your situation requires careful study. You should talk to a qualified adviser to determine how your own plan may be affected by estate tax and income tax.

If you want to consider the use of a testamentary charitable trust, FST will provide you with tax and income calculations tailored to your particular situation. This will help you and your advisors determine whether a charitable trust meets your financial and philanthropic objectives. All information is provided confidentially and without cost or obligation.