Can You Name a Charity as the Beneficiary of a Retirement Account?

You can accomplish the same thing two different ways: by naming a charity as the beneficiary of an IRA, or making the IRA a POD, the charity will receive the funds directly after you pass.

When you decide to gift your retirement account to a charity, it is recommended to speak with an estate planning attorney in order to avoid  future complications. If you designate a charity as the beneficiary of your IRA, when you pass away, a representative from the charity can claim the donation once the IRA custodian has confirmed your death.  By directly naming the charity through the IRA custodian’s beneficiary designation forms, the donation is transferred directly without the need for probate.

After the asset owner dies, the charity will contact the bank or IRA custodian 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.  Naming the charity directly as the beneficiary of an IRA also avoids income taxes that would have to be paid if an individual were named directly on such an account.  Because there are many income tax and estate tax issues involved in this decision it is smart to sit down with an estate planning attorney to discuss the best options that will accomplish your goals.

Another important tip: the retirement account owner should tell the charity that it has been named as a beneficiary.

Similarly, most banks offer a Payable-on-Death (“POD”) or “Transfer on Death” (“TOD”) option for most accounts they manage. A POD or TOD bank account is another easy way to keep money out of probate. All a person must do is properly complete the bank’s POD or TOD forms to indicate whom they want to inherit the money in the account or certificate of deposit at the death of the owner of the account.

The bank transfers ownership of the account to the named beneficiary, be it a charity or individual, once the bank receives confirmation of the owner’s death.  This process circumvents the need for probate.

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.

However, most people don’t realize that this solution will no always avoid probate.  If a charity no longer exists, or if an individual does not survive the account owner, then a probate may be required to pass the bank account or IRA to the proper beneficiaries.  Similarly, if the account owner becomes incapacitated, having a financial power of attorney in place can allow a trusted agent to step in for the account owner to perform needed transaction or distribute money on their behalf, and will avoid the need for a costly conservatorship to appoint that agent. 

At the Soto Law Firm, we guide clients through the estate planning process and help them understand the best ways to organize their assets and beneficiary designations to avoid incapacity and conservatorship issues, and be assured that their assets will avoid probate after they are gone.  Call us today for a free consolation to learn more about your options.

Reference: Houston Chronicle (May 7, 2018) “A charity can be named beneficiary of a retirement account”