Naming GFU as beneficiary of a retirement account example

Funds held in retirement accounts - IRA, 401(k), 403(b), and similar accounts - are often subject to estate tax and income tax. These funds are classified as Income in Respect of a Decedent (IRD). If the decedent had received the property before death, it would have been taxable income to the decedent.

The assets in these retirement accounts are treated differently than other assets. They are potentially subject to both estate and income tax. Consider Tom Jones who would like to treat his two grandchildren, David and Sharon, equally. Upon his death, he leaves $100,000 of stock that he purchased for $60,000 to David and he leaves $100,000 in his IRA account to Sharon .

Both assets could be subject to estate tax if his estate exceeds the amount protected by the "unified credit." However, when David receives his $100,000 of stock he will not have to pay any income. In fact, he gets a "stepped" basis in the stock, so that if he sells the stock for more than $100,000 he will pay no income tax.

Sharon, on the other hand, receives the $100,000 from the retirement plan. The entire amount will be subject to income tax because retirement plan distributions are IRD.

It is best to make a charitable bequest using retirement funds by transferring the taxable investments (IRD funds) to a tax-exempt charity (George Fox University) and to transfer the non-taxable assets to the heirs. Since George Fox is a charitable, tax-exempt entity, the university will be able to keep the entire bequest without paying any income taxes.

Beneficiary Designation for George Fox - language for beneficiary designation.

"I designate George Fox University, a non-profit public benefit corporation of the State of Oregon, as beneficiary. (as beneficiary for ___ % of the assets of the XYZ retirement account.) These funds may be combined with the university's other funds for purposes of investment and reinvestment and shall be used by George Fox University in support of (designated program).

"If at any time in the judgment of the Board of Trustees it is impractical or impossible to carry out this purpose, then the Board of Trustees of George Fox University may use this bequest for such other purposes as shall be determined by the Board of Trustees to be consistent with my interests and intentions."

The second paragraph is a standard "what if the world falls apart" paragraph that enables George Fox to manage funds if a particular fund purpose is no longer valid - e.g. money directed to a program that no longer exists. This paragraph may never come into play, however it is best to keep it so the designation is consistent and helps makes things easier to administer.