Whichever way you decide to gift your retirement account, most likely an IRA, to a charity, make sure that you speak with an estate planning attorney and that you have the correct forms in place, so there are no issues. If you designate a charity as the beneficiary of your IRA, when you pass away, a representative from the charity should be able to present the bank with a certified death certificate and receive the funds. However, make sure that you have all the paperwork done now.
There’s no need for the charitable organization to go through probate to obtain the funds.
There’s also a Payable-on-Death (or “POD”) that would work, if the bank has the proper POD form. A payable-on-death bank account is an easy way to keep money out of probate. All a person must do is properly notify the bank of whom they want to inherit the money in the account or certificate of deposit.
The bank and the named beneficiary simply take care of the administration and circumvent probate court.
The Houston Chronicle’s recent article, “A charity can be named beneficiary of a retirement account,” explains that designating a beneficiary on a retirement account and designating a person as the POD beneficiary, both accomplish the exact same thing.
They are both designed to pass the asset to the beneficiary or beneficiaries you’ve named, after you pass away.
With both of these methods, you’re arranging for one or more people to receive assets you own, without these assets passing under your will. However, with an IRA, the preferred method is to designate one or more beneficiaries on the institution’s own beneficiary designation form. A Payable-on-Death is typically used with a bank account.
After the asset owner dies, the charity will contact the bank and complete the required forms to claim the funds. A death certificate will again be required at that time.
Since the charity was named directly as a beneficiary, it won’t be necessary for it to go through probate to claim the IRA benefits. Moreover, the charity will get one hundred cents on the dollar from the retirement account, while a non-charitable beneficiary would be required to pay income tax on receipt of the funds out of the retirement account; even estate taxes can be imposed on retirement accounts not passing to a charity if the estate is large enough. Thus, charities make great retirement account beneficiaries.
Another important tip: the retirement account owner should tell the charity that it has been named as a beneficiary.
Reference: Houston Chronicle (May 7, 2018) “A charity can be named beneficiary of a retirement account”