Often individuals donate to Meals on Wheels of Hamilton County (“MOWHC”) by making a gift to MOWHC in their Last Will or Revocable Trust. While the planned giving is greatly appreciated, you, the donor, and your other beneficiaries, will only receive a tax benefit if your estate is subject to federal estate taxes.  In 2022, you can transfer up to $12.06 million dollars at your death without incurring any federal estate taxes. Due to the federal estate exemption and the repeal of the Indiana Inheritance Tax in 2012, there may not be any tax benefit by making a charitable gift in a Last Will or Revocable Trust.

IRA Planned Giving

Alternatively, you could name MOWHC as a designated beneficiary of your IRA or other retirement accounts.  Assets in an IRAs are tax-deferred until the assets are distributed to the account owner or upon the death of the account owner. Prior to the enactment of the SECURE Act, a designated beneficiary could leave the assets in the IRA after the account owner’s death  over the designated beneficiary’s life expectancy and delay paying federal income taxes on those assets.  Effective on December 20, 2019, the SECURE Act eliminated the life expectancy payout option for non-spouse designated beneficiaries such as children and replaced it with a mandatory 10-year payout following the account owner’s date of death.

For example, if Mary dies in 2022 with an IRA worth $ 3 million and her children are the designated beneficiaries of Mary’s IRA. Mary’s children will have to withdraw the money in the IRA (and pay federal income taxes) over the following 10 years.

Ins and Outs of Tax-Effective Planned Giving

It may be more tax-effective for Mary (and her children) if she leaves all of her non-IRA money to her children, eliminate the gift to MOWHC in her Last Will or Revocable Trust and designate MOWHC as a beneficiary of a specific sum or a percentage of the IRA. The IRA’s funds distributed to MOWHC will not be subject to federal income taxes since MOWHC is a tax-exempt organization. However, it is important to note that if Mary would like to name her children as beneficiaries of the balance of her IRA, the distribution to MOWHC must be made no later than September 30th of the calendar year following Mary’s death in order for Mary’s children to still be eligible for the 10-year payout. Any change in a donor’s estate plan should be reviewed with the donor’s professional advisors.  

In closing, always make sure to seek the advice of your financial or legal advisor in regards to your plans for providing for the people and charitable work you love. For additional information, or to chat more about the different options for including the MOWHC  in your will or estate plan, contact our office. Lastly, for any planned giving please make sure to use our legal name and federal tax ID.

*Information contained herein was accurate at the time of posting. The information on this website is not intended as legal or tax advice. For such advice, please consult an attorney or tax advisor. Figures cited in any examples are for illustrative purposes only. References to tax rates include federal taxes only and are subject to change. State law may further impact your individual results.