(Continued)

Turning a Bad Asset into a Good Asset

Is there such a thing as a bad asset to leave to your heirs? From a tax perspective, the answer is YES! An Individual Retirement Account (IRA) can be such an asset - if it contains tax-deferred income.

The IRA is paid on death as you have directed in your beneficiary designations. However, the IRA proceeds that your beneficiary receives must be reported as ordinary income. The IRA proceeds may even put your heir(s) into a higher marginal income tax bracket. 

The higher the bracket, of course, the greater the income tax your beneficiary may have to pay on the appreciation in the IRA. For some people, close to 40% of the IRA value can be lost to heirs through income taxes.

The higher the bracket, of course, the greater the income tax your beneficiary may have to pay on the appreciation in the IRA. For some people, close to 40% of the IRA value can be lost to heirs through income taxes.

If you plan to include gifts for ministries in your estate plan, a wise gift for ministry (and for your heirs as well) would be to give the IRA to ministry. You can leave all or part of the IRA to the Lord's work and help your family reduce taxes. Ministries do not pay income taxes, so ministries will have the full value of the gift. In addition, the gift to ministries will lower any estate taxes that might be due since there will be a charitable deduction for the gifts.

There is also a way that you can use the IRA to provide income to heirs for a period of years and, at the end of the income period, to give the remaining prinicipal to your favorite ministries. Lutheran Planned Giving Services is available to you to discuss this and any other planned giving concept.