Charitable Estate Planning

The American Heart Association (AHA) offers a six-hour course in charitable estate planning which I recently completed. It was both educational and provocative. I will start by touching on the provocative and then share my thoughts on charitable estate planning with IRAs.

As a financial planner, I am in the unique position to be privy to my clients’ charitable interests and endeavors as well as my own family’s. This gives me the insight as both an advisor or facilitator of charitable decision-making and as a charitable decision-maker myself.

For many, the first question that stymies donors is, “what can I afford to give?”

As financial planners, we are well versed in answering this question. We can help charitably-inclined families establish an annual charitable budget that ensures they meet both their long-term financial goals as well as their philanthropic goals. We can even help in determining what amount they may need to pass to heirs after their death to avoid tax and to ensure they have “enough” while at the same time making a charitable bequest.

Once the financial aspects are clarified, new questions emerge. How does charitable giving fit into your life? How would you like it to fit in? How might it engage your family? What areas do you wish to support? Here, the AHA’s materials offer some valuable and provocative questions to ask yourself:

  • What organizations have made a difference to your family in the past?
  • What issues “break your heart”?
  • If you had one year left in your life, how would you spend your time and resources?
  • What do you consider the highest purpose of your life? And your assets?
  • If you were given $10 million and you had to give it away, which causes provide the opportunity to fulfill your passions in life?
  • Are there any organizations that have had a significant impact on your life? How has it shaped your priorities and values?
  • How do you wish to be remembered by your family, friends, and community?


Each of these questions may provoke a conversation to help shape your vision of how you want your final wealth to be deployed. As many studies of philanthropy attest, charitable giving and planning can enhance and express a family’s core values. It can create a dialogue between generations about those values. Yet, many families rarely discuss charitable giving.

One of the most interesting suggestions made in the program is the idea of thinking of your “family” as including charity. In thinking about charitable estate planning, they suggest that if you have three children, for example, then consider “charity” as your fourth child. Ask yourself, will your three children still be “ok” by adding another child? I found this intuitively appealing.

The second idea is pledging 10% of final wealth to charity. Leave 10 is an organization based in Seattle that works to educate and motivate donors to make this pledge. They highlight the “disconnect” between annual giving and the lack of giving at death.

Americans are considered among the most charitable people in the world. According to the World Giving Index, 63% of them make charitable donations, 46% volunteer their time for causes they care about, and 73% report helping strangers.

And yet, fewer than 8% include a gift to charity in their estate plans.

Charitable Estate Planning and Your IRA

There are two broad categories of gifts made at the end of life:

  1. A bequest that is revocable, meaning it can be changed. This might include naming a charity as a beneficiary of a life insurance policy, a retirement account, or leaving a specific bequest in your will. These types of gifts are easy to understand.
  2. Split-Interest gifts. These are irrevocable commitments that benefit both a charity and a donor or donor’s family/friends. Because of their dual purpose, these vehicles tend to be more complex and have a range of tax benefits. Examples include Gift Annuities, Charitable Remainder Trusts, Charitable Lead Trusts, and Retained Life Estates.


It would be impossible to cover all the possible charitable estate planning vehicles in a short blog, so I will focus one that is highly relevant to our clients: Charitable Estate Planning with your IRA.

Of all the assets in your estate, I can say with a high degree of confidence that your IRA is likely to be the most heavily taxed after your death. Even if your estate is unlikely to owe federal or estate tax, your IRA beneficiaries will owe income tax (federal and state) as they withdraw from an inherited IRA. This income will be piled on top of their other income and is, therefore, likely to be taxed more heavily. In December of 2019, the SECURE Act significantly curtailed the “stretch” that beneficiaries previously enjoyed. In other words, rather than stretching the inherited IRA over a beneficiary’s life expectancy (e.g., 34 years for a 50-year-old), they have to distribute the full amount by the end of 10 years from the death of the original owner*.

This new set of rules ensures that heirs will be heavily taxed. I see several remedies to consider:

  1. During your lifetime, convert to a Roth and pay tax. This may or may not save much. It will depend on your tax bracket and that of your heirs. They will inherit a Roth account with no income tax liability, and while they will be required to distribute it in 10 years, they will owe no income tax. The downside is that it will cost you money now.
  2. Name a charity (or Donor Advised Fund) as the beneficiary of your IRA. This is especially powerful if you have a taxable estate since it will mean that your estate would avoid estate tax and your heirs avoid income tax. In modeling, this may be the single most powerful tax avoidance step to take. It does, of course, require some desire to leave to charity, and it may involve too much of a reduction in what you want to leave to your family.
  3. Consider using a Charitable Remainder Trust as the beneficiary of your IRA. This may allow you to satisfy three goals: to benefit a charity, save on taxes and create an income flow to a family member.


Let’s explore the last option, naming a Charitable Remainder Trust (CRT) as an IRA beneficiary because the SECURE Act has made this more attractive. Upon death, the CRT would receive the value in the IRA in a tax-free transfer. The CRT would have beneficiaries named and a stipulation of a payout in terms of timing and amount. The estate would receive a charitable deduction for the estate depending on the ages of the beneficiaries. At the death of the beneficiary, the charity receives the remainder. If a 50-year-old beneficiary inherited a $1 million this way, received 5%/year, and lived 35 years, and the CRT earned 6%/year, then they would receive a little over $2 million spread over the 35 years. The annual distribution would be taxable to the recipient, but the assets would be held in a trust and protected from creditors, plus the tax-deferred environment would be extended from 10 to 35 years. If desired, the payout could be delayed until the heir was retired and timed to coincide with lower-income years. This would also mean a greater payout to the beneficiary as the CRT is allowed to accumulate. The downside, of course, is that the heir would not have unfettered access to the CRT.

Charitable estate planning requires considerable thought and clarity in terms of your intentions and goals, as well as exploration of all options.

*unless they are less than 10 years younger than the decedent.

Robin Sherwood, CFP®

With over twenty years of experience, Robin assists clients in maximizing their financial well-being. She counsels clients in the areas of retirement, taxes, investments and estate planning.

Robin is a CERTIFIED FINANCIAL PLANNER™ practitioner and a registered member of NAPFA. She has an MBA in Finance from the Wharton School at the University of Pennsylvania, and a BA from Colby College.
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
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