Berge & Berge, LLP Blog

Friday, November 9, 2018

A Common and Costly Estate Planning Mistake

Q: Could how I leave money to charity cost my children more money in taxes?

A comprehensive California estate plan will not only include a will, and possibly a trust, which disposes of your property after death, but also powers of attorney, healthcare proxies and living wills that protect you and your assets in the event you become incapacitated and are unable to handle your medical or health care decisions.

While your initial estate plan should be created when you are young, it will change, sometimes often, throughout your lifetime as milestones like marriage, children, divorce, and business dealings impact the amount of your assets and who you want to leave them to. The unique LifePlan™ program at the Law Offices of Berge & Berge was designed to make it easy for clients to maintain a life-long relationship with the firm while saving money on certain estate plan revisions.

Having a skilled estate tax planning firm handle your estate plan can ensure that the plan is set up to both meet your wishes and avoid potential tax issues. One mistake that could cost loved ones unnecessary taxes occurs in a common scenario where a husband and wife leave their estates to each other, after which the surviving spouse leaves their estate to the children and gives a portion to a favorite charity. For the sake of illustration, let’s assume the last surviving parent has a home, bank savings account, and an IRA. Generally, the IRA will name the children as beneficiaries.

If the charity is listed as a beneficiary in the will or a revocable trust, in many instances where IRAs exist for the children, the bequest will come at an unnecessary and unintended cost to the children. Consider instead, naming the charity as beneficiary of all or part of the IRA.

IRAs are generally “income-taxable funds” when the distribution is made to the children, meaning they don’t get 100% of the funds but rather the balance once they pay the tax on it. Conversely, charities don’t pay taxes on the IRA funds. So, naming the charity as a beneficiary of a certain portion of the IRA (on the IRA beneficiary designation form) may be a way to accomplish your wishes while still providing a tax savings to the children.

But since everyone’s family-structure, net worth, and financial portfolios differ, only a skilled estate planning attorney knowledgeable in relevant tax laws, can advise how best to structure planned giving and other bequests on a case-by-case basis.

If you need assistance with an initial estate plan or with modifying an existing one, the estate planning experts at the Law Offices of Berge & Berge can help you. Contact us today to schedule a consultation.

From our offices in San Jose, we’ve been proudly serving the South Bay area of California for 23 years in all matters of trust and estate planning.

Archived Posts


Estate Planning and Elder Law News

© 2018 Law Offices of Berge & Berge LLP | Disclaimer
1101 S. Winchester Blvd, Suite I-208, San Jose, CA 95128
| Phone: (408) 389-6980

The LifePlan Program | Estate Planning | Estate Tax Planning | Business Succession Planning | Probate / Estate Administration | Elder Abuse/Conservatorships | Trust and Estate Planning | Public Benefits | Special Needs Planning | Trust Administration | | About Us | Forms | Resources

Law Firm Website Design by
Amicus Creative