Retirement funds can be costly to inherit, as these assets often face double taxation. Because assets remaining in retirement plans are often funded with pre-tax dollars, they are considered “income in respect of a decedent.” As a result, not only is the amount diminished by estate taxes, but the recipient must also pay income taxes on the assets once they receive them.
Through estate planning, however, you can take advantage of the charitable gift option.
Through a financial advisor, estate planner, or plan administrator, you can designate Middlesex as the beneficiary of your retirement plan, avoiding all income and estate taxes while supporting an area of the School that is important to you.
If you make Middlesex the owner and beneficiary of your policy, you will typically receive an income tax deduction for the policy’s fair market value or cost basis. In addition, you will receive an estate tax deduction for the insurance proceeds.
Another option is to use life insurance to replace the value of a different gift. For example, you could donate appreciated securities to Middlesex—taking advantage of the tax benefits that go along with such a gift— and purchase life insurance to “replace” the assets. This can allow you to bequeath an equivalent amount to your heirs, as if you had left them the stock.
Real estate, whether a primary residence or a vacation or business/commercial property, can often be an optimal charitable gift. Donating real estate that has been held for over a year generally entitles the donor to an income tax deduction equal to the full fair market value of the contributed property.
The donor can also avoid capital gains taxes on the appreciated portion of the property that would have been taxed if it were sold.