Thursday, February 22, 2024

Leaving a Legacy Gift without updating your will


Looking for a method of leaving a legacy gift without spending the time and energy of updating your will or estate plan? Look no further than your qualified retirement plan (IRAs, 401(k)s, 403(b)s, etc.) or permanent life insurance policies.
These assets both allow the owner to designate a beneficiary (or multiple beneficiaries) that bypasses the probate process and takes precedent over wills or other estate planning documents, and updating a beneficiary is as easy as requesting a beneficiary change form from your financial or insurance advisor.
Retirement plan
For many of my clients their IRA is one of their largest liquid assets. They’ve spent years contributing to them and enjoying the tax benefits they provide.
Many of my clients also find that, once they’ve reached retirement, they are not as dependent on the income the IRA can provide than they thought they would be, and simply withdraw the minimums required each year after reaching age 70 ½.
In many cases this means there will be money left over in the IRA once the owner passes away. These assets can be passed on to the next generation, but at a cost, as IRA assets are taxable to a beneficiary and may face additional estate taxes depending on the size of the owner’s overall estate.
By making a qualified charity the beneficiary of an IRA, the owner can deduct the amount from their overall estate, and the balance will pass to the charity free of taxation. This allows the IRA owner to not only make an impact on their community, but also gives them the flexibility to pass on other, more tax efficient assets to their heirs. This same strategy can also be applied to qualified and non-qualified deferred annuity contracts.
Life Insurance
Permanent life insurance policies are another asset that can easily be updated to create a legacy gift. Life insurance is put into place as a form of protection. Policies are purchased to protect our families from a premature death where the death benefit is intended to provide income replacement and the liquidity to pay off debts.
If you have had the good fortune to live a long life and find you no longer need the insurance policies for their original intent, updating the beneficiary to your charity of choice will provide a legacy gift at your passing. Life insurance death benefits are generally paid tax-free, and this would certainly be true if a charitable organization were the beneficiary of the policy.
It is important to note that the owner of a qualified retirement plan, deferred annuity contract, or life insurance policy may name more than one beneficiary. If the owner would still like some money to be passed on to their heirs, they can name both the heirs and a charity.
While these beneficiary updates are as simple as completing a form or two, an owner should still consider any estate planning that may already be in place and ensure the changes would still coordinate with that existing planning.
Remember that your named beneficiary can be as broad or as specific as you choose.
The Community Foundation of NCW manages hundreds of charitable funds that benefit specific nonprofits or scholarships, general “fields of interest,” and of course endowed funds that will give back forever. For more information, call 509-663-7716 or visit


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