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Example 1While some donors wish to keep their personal affairs private during their lifetime, they can still set up a succession plan to ease the transition at the end of their lifetime. This advance planning can help ensure the executor of the donor's estate will be able to distribute the assets according to his or her wishes in an expeditious manner.
At the end of each year, Stacey reviews her estate planning portfolio. In addition to her will and power of attorney documents, this portfolio includes statements from each of her financial accounts as well as a copy of the beneficiary designation forms for each account. This portfolio is kept in a fireproof safe in her home. Stacey also maintains an electronic copy of these documents on a USB flash drive in her safe deposit box, along with a copy of the code to access her home safe. Stacey has made arrangements with her bank to ensure that her daughter and son, who are named primary and secondary executor of her estate, will have access to the safety deposit box after her passing. She informs her children of the arrangements she has made and notes they will find a letter containing her final wishes in her portfolio. This letter includes a list of the individual and charitable beneficiaries Stacey would like her children to notify in the event of her passing.
Example 2The above example includes some of the most basic information that a nonprofit may be asked to provide in the process of claiming an IRA gift. A nonprofit may also wish to proactively include additional information to further clarify the basis for its request.
In accordance with Stacey's wishes shared in a letter to her children, her daughter informs the Smalltown Animal Shelter of Stacey's passing and that Stacey named the organization as a beneficiary of her IRA. Stacey's daughter gives the organization the custodian's contact information and her mother's account number. The organization's president drafts a letter to the custodian and includes the following information:
- A statement that the Smalltown Animal Shelter has been named as a beneficiary of Stacey's IRA
- Stacey's name and account number
- A request for a lump sum to be distributed to the nonprofit within 30 days
- Smalltown Animal Shelter's address for receipt of the funds
- Smalltown Animal Shelter's tax ID number (TIN) and IRS tax exemption letter
Example 3Some organizations report that custodians are willing to make a lump sum distribution, but others have found that certain institutions insist upon the nonprofit organization first creating a new account prior to withdrawing the funds. The process of setting up a new account, even if only held open for a short period of time, can lead to the nonprofit's staff being put in the challenging position of unnecessarily sharing their personal information to open the account.
Custodian Request: Your organization must open a new account to receive these funds.
Potential Response: Our charitable organization is not qualified to set up an inherited IRA. Per Reg. 1.408-2(b), an IRA must be for the "exclusive benefit of an individual or his beneficiaries" and our organization is not an individual. As such, it is appropriate to transfer the funds directly to our organization.
Example 4In the event a custodian insists upon a nonprofit opening an IRA, the organization can provide its IRS exemption letter, demonstrate its current good standing and affirm it is not on the known or suspected terrorist lists. The nonprofit may want to affirm its position and continue to refuse to open a new account. IRA funds are held by the custodian as a fiduciary on the designated beneficiary's behalf. As such, the custodian has a fiduciary duty to distribute the funds according to the beneficiary's request.
Custodian Request: The Patriot Act requires us to obtain the Social Security numbers of your board members as well as their financial records.
Potential Response: Our organization does not intend to open a new account. The Patriot Act Sec. 326 provides that if an individual or corporation attempts to open a bank account, financial institutions must take steps to reduce the risk of funds being used by suspected terrorists or terrorist organizations. Our organization is not required to provide this information because we do not intend to open a new IRA.
Example 5These examples reflect a few of the challenges nonprofits report when attempting to claim IRA gifts from custodians. In some cases, the obstacles arise from procedures that are designed to accommodate individual account owners. In other cases, obstacles arise from a lack of understanding about the differing needs and requirements of a nonprofit as beneficiary.
Custodian Request: We must withhold a percentage of the IRA distribution to be delivered to the IRS for tax purposes. We cannot produce the appropriate Form 1099 for you on our systems.
Potential Response: While IRA distributions to individuals are generally subject to tax withholding, IRS Form W-4P allows us to elect no tax withholding. As a qualified tax-exempt charitable organization, we are not subject to income tax. We will accept a manually generated Form 1099 in the event one cannot be produced automatically.
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A charitable gift annuity is a great way you can make a gift to our organization and benefit. You transfer your cash or property to our organization and we promise to make fixed payments to you for life at a rate based on your age.
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This site is informational and educational in nature. It is not offering professional tax, legal, or accounting advice. For specific advice about the effect of any planning concept on your tax or financial situation or with your estate, please consult a qualified professional advisor.
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