A few months ago I was informed a woman from Cincinnati—we’ll call her Miriam—had named the Jewish Federation of Cincinnati in her will, and left us $1,000.
We haven’t received it yet—the estate is still not settled—but just this past Wednesday I heard news from her lawyer that really shook me.
It turns out the estate has already paid the federal government almost $2 million in estate taxes. Well, estate taxes are only triggered on money that’s over $5.5 million per individual.
This means the estate could be worth close to $10 million or more.
Miriam was 80 years old, but these days that’s not old; she died unexpectedly, still working, and in apparently good health. She probably was thinking, like many of you, she would get to updating her will sometime.
But in reality she hadn’t updated the will since the 1970s.
Miriam had no heirs. She was a regular, loyal donor to the Jewish Federation at $25 or sometimes $30 per year for as long as our records go back. In fact the $1,000 to us in her will was actually made out to the Jewish Welfare Fund, our old name pre-1972.
In conversation with the attorney I asked if there were other organizations to which she had specified larger gifts, and was told no—all the gifts were relatively small.
It’s very apparent Miriam had no gift planning advice.
A considerable portion of her assets had been put into a qualified retirement plan; ie an IRA. The problem with an IRA in an estate is that it becomes fully taxable for your heirs— however it is not taxed if it is given to charity. In fact in Miriam’s case likely 70% or more will go to taxes—income and estate. In short, the most -efficient use of an IRA left in an estate is to name charities as beneficiary, while leaving other assets, such as stocks, bonds and real estate, to your heirs.
Miriam could have given millions away to the organizations she cared about.
She was too busy working or perhaps simply living her life to see the disaster she would leave behind.
So my advice is: please avoid another $10 million “tragedy”.
- Update your will if you haven’t done so in the last 3-5 years.
- It could be easier than you think to give a significant legacy gift to the charity of your choice by utilizing your IRA, since the money from an IRA will remain tax-free for a charity, but not for your heirs.
I would be glad to be of help. Please feel free to contact me with a question or situation you would like me to address for you personally, or in this column. —Jim Friedman (contact info below)