It comes as a surprise to many individuals that assets held in qualified retirement plans are considered "income in respect of a decedent" at their death. This means that these assets are not only subject to federal and state income taxes, but they are subject to federal and possibly state estate taxes. In some cases, the total of these taxes equal 75 percent or more.

With this in mind, many advisors recommend that, to the extent you are going to be charitable through your estate plan, satisfy these commitments by giving assets from your qualified retirement assets.

Example:

Polly Royale, a widow, has one son. Mrs. Royale and her husband accumulated an estate of several million dollars over the years. Mrs. Royale would like to leave as much of her assets as possible to her son. She would also like to leave a bequest in her estate plan to Cal Poly.

One of her assets is a $500,000 IRA (Individual Retirement Plan), which she has designated to her son via the IRA administrator's beneficiary designation form.

She visits her attorney to discuss her desire to leave a bequest to Cal Poly. He lets her know the bad news that if she were to die and leave the assets of her IRA to her son, after deducting approximately $100,000 for federal and state income taxes and approximately $250,000 for federal estate taxes, her son would receive the remaining $150,000 (or 30 cents on each dollar that was in the IRA).

The attorney recommends instead that she make her gift to Cal Poly from her IRA. Because the Cal Poly Foundation is a 501(c)(3) tax exempt organization, the entire $500,000 will be available to the University at her death.

For more information on planned gifts that incorporate retirement plan assets, please contact us at (800) 549-2666 or (805) 756-7125 or via email at
plannedgiving@calpoly.edu.

Profiles in Giving: Jerry Counts
Alumnus Jerry Counts is a Man on a mission. As a Boeing senior systems engineer, he helped develop the International Space Station's power system, which was launched and installed by space-walking astronauts after the Russian service module was attached in October 2000. He wanted to give to Cal Poly and students in need a substantial amount, and his estate planner suggested that because his 401(k) plan was tax deferred, it would be the best asset to leave the university.