One of the easiest but often overlooked opportunities to leave a gift from one’s estate is the beneficiary change opportunity that comes with an IRA, a 403-b, a 401-k, group life insurance, an existing life insurance policy or an existing commercial annuity.
All of the above-mentioned require a designated beneficiary to be named with the plan or policy. With employer-sponsored plans, a custodian is hired to maintain the details of each participant’s account including beneficiary designations. Usually, there is an open-ended opportunity to make changes and the process is no more difficult than to request a “Change of Beneficiary” form from the custodian, make the changes, sign and return the form. No attorney is needed, not even a notary.
The options are to name a primary beneficiary, usually one’s spouse if married, and then a successor beneficiary, sometimes called a contingent beneficiary. The successor/contingent beneficiary would receive the death benefits if the primary beneficiary is deceased.
It used to be that only persons could be named as beneficiaries –but no longer. The law now allows non-persons to be named and that is where a charity can fit. On the primary beneficiary line the percentages can be spelled out to indicate which individual and/or what charity will get what percentage. For example, I might sign off on 90% to my spouse and 10% to a favorite charity. Likewise, on the contingent beneficiary line I could say 90% to my children equally and 10% to a charity or charities.
Of course, these designations are revocable but from the charity’s point of view, we would hope that once a form has been signed and filed, there would only be a small number of folks that would choose to change their minds later on. My prediction is that instead of getting mostly bequests from people’s wills after a probate process, we will see more of the type of gifts I’m describing here due to the ease of making the changes.
By the way, beneficiary designations never go through probate.
My experience tells me that if someone is inclined to make a bequest to a charitable institution, they soon discover that they have to see an attorney who will send them a bill for their services. So I think many people tell themselves, “I think I’ll wait until I have two or three reasons to see my attorney.” Unfortunately, procrastination is part of human nature and I’m afraid that many good intentions have gone unexecuted.
As far as life insurance policies and commercial annuities are concerned, again a “Change of Beneficiary” form is what is requested from the insurance company. The legal owner of the policy can make a beneficiary change any time. Primary and contingent beneficiaries are named just as with employer sponsored plans.
Another idea that should be kept in mind that adds to the attractiveness of this gift-making opportunity is that the proceeds of retirement plans have never been taxed and therefore when the proceeds are distributed either during life or at death the taxes are due. Even though there are rollover opportunities for beneficiaries to postpone the taxes, the fact remains that the distributions will be taxable. Not so with distributions to charities. Charities receive the proceeds tax free as long as our tax laws continue to recognize the 501-(c)(3) status of exempt organizations.
In conclusion, I’ve been told that Baby Boomers value convenience, flexibility and personalized attention. I think that having an easy and efficient way to make a difference to a charity through this approach meets those criteria and will be utilized more and more in the future.