Donating IRA Assets to Charity at Death

The owner of an IRA must complete a designation form that directs where the remaining assets in the IRA should go at the owner's death.  A series of IRS private letter rulings have made clear that if the owner designates some or all of the IRA assets outright to charity, the assets will not be subject to ordinary income tax or federal estate tax.  Similarly, private letter rulings have made clear that if the IRA owner designates that the assets be used to fund a charitable remainder unitrust or a gift annuity, that the charitable portion of the gift will not be subject to ordinary income tax or federal estate tax.  If these assets were designated for heirs instead, they would be subject to both of these taxes.  Other assets in the estate typically are not subject to ordinary income tax and therefore can be transferred to heirs at a lower tax cost.

As a result, IRA assets (and other retirement plan or IRD assets) have become a preferred source of funding for these types of charitable gifts at death.