Back to basics: Retirement plans and life insurance can fuel meaningful bequests

Back to basics: Retirement plans and life insurance can fuel meaningful bequests

Your client’s fund at the community foundation can be an ideal recipient of estate gifts through a will or trust, or through a beneficiary designation on a qualified retirement plan or life insurance policy. 

Bequests of qualified retirement plans can be extremely tax-efficient. This is because charitable organizations such as the community foundation are tax-exempt. This means the funds flowing directly to a client’s fund at the community foundation from a retirement plan after the client’s death will not be reduced by income tax. This also means the assets will not be subject to estate tax. 

Don’t overlook life insurance, either. Not only is your client able to designate a fund at the community foundation as the beneficiary of a life insurance policy, but your client also may elect to transfer actual ownership of certain types of policies. For example, when your client makes an irrevocable assignment of a whole life policy to the client’s fund at the community foundation, a tax-deductible gift of the cash value of the policy occurs at the time of the transfer. A gift like this can ease a client’s income tax burden, especially if the foundation continues to own the policy and the client makes annual tax deductible gifts to cover the premiums.  

The community foundation makes it easy for you to draft bequest terms in legal documents, including beneficiary designations of retirement plans and life insurance policies. Please contact our team for the exact language that will ensure alignment with your client’s intentions. 

Keep in mind that even after a client has executed estate planning documents or beneficiary designations, in many cases the client can update the terms of the fund at the community foundation designated to receive the bequest upon the client’s death. Clients love the ease and flexibility and certainly will appreciate your bringing this technique to their attention.