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Leaving your IRA to charity

If you'd like to leave a charitable legacy while also protecting your heirs from tax burdens, it's a good idea to carefully consider how you divvy assets up during estate planning. In some cases, you can leave an asset to charity without the charity having to pay taxes on it, but if you leave the same assets to heirs, taxes might be owed.

One such asset is a non-Roth IRA. When heirs take distributions from such accounts after you pass away, they might have to pay taxes on that income. Depending on how you leave the assets to charity, however, the charity might not owe the same taxes. You can opt to support a favorite charity with your IRA funds while providing heirs with assets from completely different sources that come with less of a tax burden.

IRAs can also be somewhat flexible when you are dealing with estate matters. If you want to support multiple members of your family or a heir and a charity, you can split an IRA account in two. You can then leave part to the charity and part to an heir; this is especially handy if you have a surviving spouse, who could roll your IRA into his or her own.

One downside to leaving part or all of an IRA account to charity is that you might not be able to dictate your wishes for how the funds are spent. When you make a bequest in your will, you can put your wishes in writing. Beneficiary forms on an IRA account aren't so detailed, so make sure to speak with your estate lawyer about the best ways to make your wishes known.

Source: NASDAQ, "Why You Should Make a Charity the Heir to Your IRA," Kimberly Lankford, Dec. 20, 2016

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