ECCFWI

Want to help clients get the most value from their nest egg, protect their family from heavy taxes, and give back to their community? Suggest naming the Eau Claire Community Foundation as a beneficiary of a client’s retirement plan assets.

How the Client Benefits

Leaving retirement plan assets to the Eau Claire Community Foundation shields family members from taxes on the retirement assets and frees the client to give them other assets that are not as heavily taxed.

How It Works

Most retirement plans, including 401(k)s and IRAs, are income tax–deferred, meaning that income tax is not paid until the funds are distributed in life or upon death. This taxation makes retirement assets among the most costly assets to distribute to loved ones.

Because they are subject to income taxes when received by individual beneficiaries, retirement assets make ideal gifts to tax-exempt charitable organizations. The income taxes on retirement assets left to loved ones can be as high as 39.6 percent. This means that an IRA worth $100,000 will be worth only $60,400 by the time it reaches them.

On the other hand, naming a charity as the beneficiary of retirement assets upon death generates no income taxes. The charity is tax-exempt and eligible to receive the full amount and not pay any income taxes. In the above example, this means the Eau Claire Community Foundation would receive the full $100,000.

Consider these options:

1) Designate the Eau Claire Community Foundation as the primary beneficiary for a percentage (1- 100 percent) of retirement plan assets.
2) Designate a specific amount to be paid to ECCF before the remainder is divided among family beneficiaries.
3) Make ECCF the contingent beneficiary to receive the balance only if individual beneficiaries, as primary beneficiaries, don’t survive the plan participant.

To implement these wishes, assist the client in advising the plan administrator of his or her decision and sign whatever forms are required.

To implement your wishes, simply advise your plan administrator of our decision and sign whatever forms are required.

Jennifer plans to leave $250,000 to her niece, Heather, and $250,000 to the Eau Claire Community Foundation. Among her assets, Jennifer owns a $250,000 IRA. If she leaves the IRA to Heather, it will be subject to income taxes at Jennifer’s marginal income tax rate (35 percent).

To avoid her niece having to pay these taxes, Jennifer names the Foundation as the beneficiary of her IRA and leaves less tax burdened assets to Heather.
Because the Eau Claire Community Foundation is tax-exempt, income taxes are eliminated.

Changing Beneficiaries

To name or change a beneficiary, simply contact the administrator of the IRA or retirement plan for a change of beneficiary form. If your client would like to name the Eau Claire Community Foundation as beneficiary, simply decide what percentage of the plan's value (0–100 percent) your client would like us to receive and name ECCF, along with the stated percentage, on the beneficiary form. Then, return the form to the administrator of the plan.

A Second Option

A client can also consider creating a charitable remainder trust for heavily taxed retirement plan assets. Such a trust could be set up to receive the retirement plan proceeds at death. The trust would pay income for life to one or more family members of the client’s choice, after which the remaining assets will pass to the Eau Claire Community Foundation.

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