You can make DCV a beneficiary of your retirement account at your death.
There can be a tax benefit to your family or other heirs from making a gift of retirement assets to DCV and a gift of other assets to your other heirs.
This is because assets like real estate and stocks receive a step-up basis upon your death. So your heirs would not have to pay taxes on appreciation before your death. However, any distributions to your heirs from inherited traditional and SEP IRAs or 401(k) and 403(b) plans are fully taxed at ordinary income rates. As a tax-exempt entity, DCV will pay no tax on either type of asset.
Take a simple example, assume that your estate consists of a condo worth $500,000 at your death and an IRA worth $500,000. You paid $100,000 for the condo. Your estate plan is for your individual heir and DCV to each get 50% of the estate. Your IRA beneficiary designation and your will give 50% of the IRA and the condo to each of your heir and DCV. If your condo were sold for $500,000, your heir and DCV would each get $250,000 and neither would owe any taxes. From the IRA, your heir and DCV would also each get $250,000. However, your heir would have to pay ordinary income taxes on that $250,000, while DCV would keep the full $250,000. On a lump sum payment from the IRA, the federal tax rate for your heir could be up to 32% or higher (plus state income taxes). Instead of receiving $500,000, your heir could actually receive $420,000 or less.
If instead, you gave your heir full ownership of the house and DCV full ownership of the IRA, your heir could sell the house for $500,000 and pay no income or capital gain taxes. They would have a net benefit of $500,000.
In either case, you would have provided DCV with $500,000 that we could use to benefit our members.
On the beneficiary designation form, you can:
- Provide that DCV will receive a fixed amount upon your death, or
- Provide that DCV will receive a percentage of the value at your death, or
- Provide that DCV will be the residuary beneficiary of the account after any other specific amounts have been paid.
If you make DCV a beneficiary, please let us know. Plan sponsors typically do not notify organizations of beneficiary designations until after the account owner’s death. Informing us will allow us to acknowledge your generosity during your lifetime and ensure payment when due.
One of the advantages of a beneficiary designation is that you can change beneficiaries by completing another change of beneficiary form at time. This provides your flexibility in case your circumstances change without having to change your will.