A Tax-Smart Way to Leave Money to Charities and Your Family


As the famous adage goes, “Nothing is certain except death and taxes.”However, while death may be a certainty, not all taxes are. The tax implications of your charitable contributions and what you leave to your heirs might not be a concern that you think about often. However, it may be important.

What are some important questions to ask regarding what you want to be done with your money after you’re gone? For example, could there be a way to ensure that less of your money goes to the IRS, and more goes to your beneficiaries? Well, taxes are assessed differently for each recipient.

What You Should Know

For example: In most cases, traditional IRAs are going to be fully taxable to your heirs. Additionally, the Secure Act made it mandatory that inherited IRA accounts are fully disbursed within ten years of the IRA owner’s death. With the exception of spouses, of course.

This means that all income taxes on the inherited IRA must be paid after ten years. Inherited Roth IRAs offer better terms. They can continue to grow for ten years after your death, and then can be withdrawn tax-free. Things like after-tax dollars or life insurance are, for the most part, not subject to income taxes at all. As you can see, tax implications vary based on which asset is being passed to which recipient.

However, there’s some good news: None of this applies if the recipient an IRS-recognized tax-exempt charity. They’re never taxed on the money they receive, period. Traditional IRAs, Roth IRAs, after-tax money, and life insurance all apply to this. Your heirs, on the other hand, will confront different tax implications depending upon the type of asset.

According to the Wall Street Journal, the best funds to leave to a charity are that of a traditional IRA. You see, traditional IRAs have been growing over the past decade. Most of the growth is due to asset appreciation and rollovers from employer-provided plans. With the demise of pensions, traditional IRAs are now the largest financial account many people have. If you would like to learn more about why leaving the money in your IRA is a smart play, read the Wall Street Journal article on the topic.

And, if you’d like to learn how you can lessen the burden of taxes on your beneficiaries (and yourself) in other ways, then contact us.

Scroll to Top
cornerstone wealth and tax advisors