Many in the Westar community have the majority of their portfolios invested in retirement plan assets. What you may not know is that those assets are among the most expensive for heirs to inherit because of the potential for heavy taxation.
Because the income tax on retirement plans is often simply deferred, retirement plan assets may be subject to state and federal income taxes, in addition to state and federal estate taxes, resulting in their being taxed four times. Multiple taxation can, on occasion, reduce the value of the asset by as much as 80 percent. So it can make sense to single out these assets for charitable purposes.
To make charitable bequests from your estate, the will should direct, where appropriate, that bequests come from IRAs and/or retirement plans such as a 401(k). However, most retirement plan assets do not pass via a will or trust. Rather, they go to the designated beneficiary on the plan itself. That’s why, when the owner of the plan fails to update the beneficiary, a former spouse will inherit over a current spouse.
To make a gift of retirement assets, you simply complete a change of beneficiary form provided by the company holding the plan. You can then designate percentages to go to one or more charities and/or family; for example: “25% to five specifically designated charities; remaining 75% to my spouse.” The beneficiaries may be changed anytime by submitting a new change of beneficiary form.
Charitable remainder trusts, which provide income to a spouse or to other family members with the remainder eventually going to a charity or charities, can also be a beneficiary of a qualified retirement plan.