Probate & Trust Law Section Conference Manual ... - Minnesota CLE

Example F – Direct Beneficiary to Charity with Adjustment by Will: Assume the
same facts as Example E. Betty is adamant that exactly 10% of her estate is to be given
to her church. The following is an attempt to accomplish that goal in a more tax-efficient
manner.
Betty creates a direct beneficiary designation which gives $35,000 (i.e. slightly
less than 10%) from her IRA account to her church. The rest of the IRA account
is given to her estate.
Her will also contains the following provision:
• I have created a beneficiary designation on my IRA account which gives
a portion of that account to my church. It is my intention that the total gift
to my church from my estate should equal exactly 10% of my net estate
(including all probate and non-probate assets after payment of claims,
taxes and expenses of administration). If the total given to my church
from non-probate sources is less than 10% of my net estate, I direct my
personal representative to give an additional gift from my probate estate
so that the total gift to my church will equal exactly 10% of my net estate.
I specifically direct that this additional gift be made solely from
distributions from my IRA account.
• I give the remainder of my estate to my children.
RESULT:
• The $35,000 charitable gift pursuant to the beneficiary designation
comes directly from the IRA and no part of that distribution is included in
the estate’s taxable income.
• Any additional amount given to the church from probate assets is
probably subject to the proportionate share rule discussed above. If the
IRA beneficiary designation is only slightly less than the total charitable
gift, this accomplishes the primary goal of giving exactly 10% to charity
and substantially increases the amount that is given from the taxable IRA.
• Warning: attempts to get clever could yield results that don’t work as
well as planned if the circumstances change or if the persons
administrating the process don’t understand the plan properly or don’t
implement the plan in as intended.
Example G – Gift from Trust Income: Betty’s creates a trust that is designed to benefit
both her son and her favorite charity. The trust owns the following assets that are likely
to earn the following annual income:
Value Estimated Income
Bank C/D’s 500,000 10,000
3M stock 400,000 12,000
The trust provides that all ordinary income (i.e., interest on the bank C/D’s) is to
be paid to the named charity annually.
The trustee has discretion to pay to Betty’s surviving son, Bill, all other income
and/or principal to meet Bill’s health, education, maintenance and support needs.
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