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If you name a charity as beneficiary, will family be upset?

If you have a family of high-strung competitors, you will want to keep that in mind when you designate a beneficiary on your retirement plan or life insurance policy.

You may think that naming a charity might be a good way to avoid family arguments after you pass away, but can you take that idea a step too far?

Setting up a win-win situation

You can name anyone, including the charity of your choice, as the beneficiary of a retirement account or life insurance policy. You can break up the proceeds, leaving a portion to the charity and another portion to a family member, if you wish, but you can also leave everything to the charity. You will likely reduce your estate taxes, and the charity stands to receive the proceeds you designate tax-free.

Taking easy steps

First, confirm that the charity you have in mind is a 501(c)(3), which qualifies for tax-deductible status relative to the money it will receive from you—other 501(c) organizations may have to pay income or estate taxes on contributions. Once you have verified the status, contact the charity you are considering to confirm that it will accept the money as a charitable donation.

Clarifying type

The charity should either be named a primary or contingent beneficiary. If primary, the charity will share equally with any other primary beneficiaries you name. If you give the charity contingent status, it will only receive proceeds if all the primary beneficiaries predecease you.

Carrying the idea forward

Naming a charity on a life insurance policy or retirement plan is one thing; naming a charity as a beneficiary in your will is something else again, especially if you leave the charity most if not all of your assets, to the exclusion of family members—which sometimes happens. In the state of Florida, your spouse will receive 30 percent of the bulk of your assets after you die. This can become a complicated matter, which is likely to bring out the competitive and argumentative nature of various family members.  

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