A large portion of the wealth held by many individuals is in the form of “Retirement Plan Benefits”. These include qualified retirement plans and IRAs. “Retirement Plan Benefits” are quite different from other assets because they represent pre-tax accumulations. Your estate plan must consider both income tax and transfer (estate) tax consequences for these “Retirement Plan Benefits”.

The value of these benefits is included in your estate for estate tax purposes. Also the beneficiary will be subject to income tax upon receipt of the benefits. Substantial tax savings and/or tax deferral possibilities exist.

Planning for a distribution of retirement benefits must be addressed at three different times: (1) before you retire with regard to the designation of beneficiary and form of payment; (2) after you retire; and (3) after your death. The objectives are likely to be different, creating the necessity to consider tax rules each time.

It is also important for you to review your planning with respect to distributions when approaching minimum distribution age (normally 70½), as well as when accrued plan benefits start to approach the threshold for taxes on excess lump sum distributions.

If you are considering making charitable gifts as part of your estate plan, one simple concept can avoid substantial taxes, while at the same time increasing the benefits for your beneficiaries. This concept is: since charities do not pay income tax on income received, using tax qualified retirement benefits to make charitable gifts avoids both income tax and estate tax on the accumulations, thereby allowing greater amounts of other assets to pass to your beneficiaries after death. You may save substantial taxes by simply allocating retirement benefits to charitable beneficiaries, and using other assets to provide for your heirs.