If you plan to leave some of your estate to charity and you have an IRA, the smartest move is usually to name the charity as the beneficiary of the IRA, not as a beneficiary of your living trust. The charity gets a 100% tax-free gift, your kids keep more of their share, and your trust administration finishes faster.
Here's why, plus the mechanics of how to actually do it.
Note. Everything that follows about IRAs applies to 401(k)s and other employer retirement plans.
If you name your children as beneficiaries of your IRA, they pay income tax on every distribution from their inherited IRA. And under the SECURE Act, they have to empty the account within ten years of your death.
Run the numbers on a $500,000 inherited traditional IRA. Your daughter is in a 24% federal bracket and pays California income tax at 9.3%. Combined, that's roughly $166,500 in tax on the way out, and she nets about $333,500.
Now run the same number through a charity. The charity is exempt from income tax. It gets the full $500,000.
If you're charitably inclined, leveraging that tax-exempt status is the most efficient gift in the entire estate plan. Every dollar of pre-tax retirement money you direct to charity goes further than a dollar of post-tax money you send through your living trust.
A trust administration moves at the pace of its slowest beneficiary.
California law gives every trust beneficiary the right to a copy of the living trust and the trust accounting, with up to 180 days to review the accounting. Family beneficiaries usually want their distribution as soon as possible. Small charities, same. But large institutional charities have queues. We recently handled a trust administration where the family beneficiaries approved the accounting in a couple of weeks. The institutional charity told us they would need the full 180 days. Not because they had any concern. They just process so many gifts they can't go any faster.
The trustee was ready to cut checks, but everything sat for six months waiting on one charity.
If you put the charity on the IRA instead of inside the trust, the charity collects directly from the IRA custodian and your trust administration stays among family. Faster distributions, less trustee aggravation, lower trust administration costs.
The cleanest setup is one IRA with the charity as the only beneficiary. Mixing a charity and individuals on the same IRA opens the door for problems.
The IRS classifies individual IRA beneficiaries as "designated beneficiaries" because individuals have a life expectancy. Under the SECURE Act, individual beneficiaries can establish an inherited IRA and stretch distributions over ten years. They control the timing of the tax hit within that window.
Charities are "non-designated beneficiaries" because they have no life expectancy. The non-designated beneficiary has to receive its share by September 30 of the year after death.
Here's the trap. If a charity and an individual share the same IRA, and the charity hasn't been paid out by that September 30 deadline, the IRS shortens the distribution window for the individual beneficiaries. Instead of ten years, they get five (if the original owner died before their required beginning date). Or they're forced onto the original owner's life expectancy schedule (if the owner died after the required beginning date). Either way, the kids get a worse tax outcome because of an administrative delay or oversight.
Once the successor trustee gets the death certificate, the beneficiaries contact the IRA custodian directly with a copy of the certificate. Individual beneficiaries have two choices: take a lump sum and pay tax on the whole amount, or open an inherited IRA and spread distributions over the ten-year window.
Charities take a lump sum because there's no reason for them to do anything else. They don't pay tax on it.
Example: you name a charity and your two adult children as equal beneficiaries on a single IRA. Each one contacts the custodian, presents a death certificate, and claims their share. The charity takes its third as a lump sum. The kids open inherited IRAs. As long as the charity is paid out by September 30 of the year after your death, the kids get the full ten-year window. If the IRA custodian or the charity drags its feet past that date, the kids' window collapses to five years (or, if you were already taking required minimum distributions when you died, they're stuck on your life expectancy schedule). Not the best result for your family.
The cure is to never share an IRA between a charity and individuals.
Splitting an IRA is paperwork, not surgery. Call your financial advisor. Open a second IRA at the same custodian. Move whatever percentage you want to leave to charity into the new IRA. Name the charity as the only beneficiary of that one. Name your spouse, kids, or other loved ones as the beneficiaries of the original IRA.
Now you have two clean designations and the September 30 problem disappears.
If you intend to leave 100% of your IRA to charity, you don't need to split it.
If you're married, name your spouse as the primary beneficiary. And name the charity as the contingent beneficiary on the IRA you've earmarked for charity, and your kids (or other loved ones) as the contingent beneficiaries on the rest.
If you're single, widowed, or divorced, you can name the charity directly as the primary beneficiary on the charity-earmarked IRA, and your kids or other loved ones as the primary beneficiaries on the rest.
Here's the one-page funding and beneficiary guide we use with our clients: How to Fund Your Trust.
Everything above is charitable giving at your death. There's a separate, lifetime version that a lot of charitably inclined clients don't know about: the Qualified Charitable Distribution, or QCD (also known as the Charitable Rollover).
If you're 70½ or older and you have a traditional IRA, you can direct your IRA custodian to send a check straight from your IRA to a qualified 501(c)(3) charity. The distribution never hits your tax return as income. For 2026, the limit is $111,000 per person, or $222,000 for a married couple if each spouse has their own IRA.
Three reasons QCDs are beneficial for California families:
One important note. QCDs cannot go to donor-advised funds or private foundations. They have to go directly to a public charity. Talk to your CPA or financial advisor about timing the QCD early in the calendar year, because the IRS treats the first dollar out of your IRA each year as your RMD.
Clark Allison has been handling California estate planning for nearly thirty years. Our main office is in El Dorado Hills on Windplay Drive. Estate planning and trust administration are all we do.
We do not hand the work to a paralegal after the first meeting. You work directly with one of our attorneys from the first call through the final signing. Most clients complete their estate plans in about two weeks. We can meet you in our El Dorado Hills office or handle the entire process by Zoom from your kitchen, which is how we serve clients virtually throughout California. Once you are a client, follow-up questions are free, forever.
Our flat fee for most families is $3,000 single or $4,000 married.
Two reasons. First, your charity pays no income tax on a distribution from your IRA, but your kids pay income tax on every dollar they pull out of an inherited IRA. Putting the charity on the IRA gives the charity 100% and saves your kids' inheritance from the tax hit. Second, including a charity (especially a large institutional one) in your trust can stall trust administration for months while the charity reviews the accounting.
No. The IRS treats charities differently from individuals, and if the charity isn't paid out by September 30 of the year after your death, your kids' distribution window can collapse from ten years to five (or to your own life expectancy schedule if you were already taking RMDs). The fix is to split the IRA. One IRA names the charity. The other names your kids.
Call your financial advisor. Open a second IRA with the same custodian. Move whatever percentage you want to dedicate to charity into the new IRA. It's an administrative task, not a complicated one. Then update the beneficiary designations on each IRA so that the charity is on one and your individual beneficiaries are on the other.
A Qualified Charitable Distribution is a direct transfer from your traditional IRA to a qualified 501(c)(3) charity. You have to be at least 70½. The 2026 limit is $111,000 per person, $222,000 for spouses with their own IRAs. The distribution doesn't count as taxable income, and it satisfies your required minimum distribution if you're old enough to be taking RMDs. QCDs can't go to donor-advised funds or private foundations.
Yes, and most charitably inclined clients do exactly that. QCDs handle the annual giving while you're alive. The beneficiary designation handles the legacy gift when you're gone. They're complementary, not substitutes.
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We serve El Dorado Hills clients from our El Dorado Hills office. We also work with clients from our Roseville, San Luis Obispo, and San Diego offices, and virtually from anywhere in California.