People in Wisconsin who want to leave a portion of their estates to charity and the rest to loved ones should make sure to avoid making common mistakes. It is important to take into account the value of an account after tax.
An example might be a person who has a home, an after-tax savings account and an IRA that are each worth $1 million. The first two items are passed down using a will or a trust. An IRA, along with assets such as a thrift savings plan and a 401(k), is passed with a beneficiary designation. The person may use the beneficiary designation to pass the IRA to children. The will or trust may leave the home to the children along with $900,000 of the after-tax savings account. The charity would get $100,000.
The problem with this arrangement is that the children are taxed on distributions from the IRA. A better scenario would be to leave the children the after-tax savings account in full along with the home. The children could also get $900,000 of the IRA while the rest would go to charity. The charity will not be taxed on the donation, and the children will get more after tax. People who are passing assets on using beneficiary designations should make sure they are consistent with the will or trust.
An attorney may be able to help a person with these arrangements along with other elements of estate planning, including wills and trusts. For example, a person who has a child with special needs may want to set up a special needs trust so the child can receive assistance without losing access to government benefits. Someone also might want to prepare documents such as powers of attorney to appoint someone to take over his or her medical and financial matters in case he or she becomes incapacitated.