We’ve given out the candy on All Hallow’s Eve. We’ve harvested and given thanks. Soon we’ll share good tidings of comfort and joy.
So this is a perfect time to consider a painless way to do something charitable. Actually, two painless ways.
One way is not going to cost you a penny more than what you are spending already.
The other way will cost you next to nothing.
Neither way will change your cash flow during your lifetime. And when you die, you’ll trigger a spectacular donation to the charity of your choice for any purpose you specify. Voilà: your personal endowment.
Here’s how this happens.
Think back to the last time you bought life insurance, whenever it was. You bought something in a multiple of five or ten, right? Nobody buys $49,000 of life insurance. No company gives its employees $9,000 of insurance coverage. You buy $1 million of life insurance not $999,999. The employer gives you $10,000. Always a round number.
And when you die, your beneficiary will get that nice round number.
Will it really matter if the insurance payoff is $1,000 less? Or 1% less? Probably not. And that becomes the key to your personal endowment. Change the beneficiary to:
“1% to [Name of your favorite charity], the rest to [whoever you named before as your main beneficiary.]”
Example: “1% to American Cancer Society, the rest to my Estate.”
And you can do that yourself. You may not even need to contact the insurance company if you can download their “Change of Beneficiary” form off the Internet.
This same idea for an endowment works with your IRA, 401(k) and any other qualified retirement plan.
You or your employer put money in. Those contributions grew. What went in, and what it grew to, was really out of your hands. (OK, you made great investments. Or they (whoever “they” might be) made terrible investments.)
But whatever is there now – or more importantly, what’s there when you die – is a sort of financial hereafter: who knows what will be in there?
Consequently, why not share a tiny part of the great unknown balance? It’s easy, and (big fanfare) it’s not going to change your beneficiary’s lifestyle one iota if they don’t get that 1%-or-whatever from your IRA.
It’s fate and serendipity (and maybe good investment strategy) which took your IRA and Plan balance to whatever it is on the day of your death. So share a little of that with some charity you like.
What do you do here? Pretty much the same thing . Get the “Change of Beneficiary” form for your IRA or Plan. Make your beneficiary:
“1% to [Name of a charity you like.]
Then the rest of your IRA or Plan Beneficiary Designation should be exactly what it is now. (You have to be careful on this, especially if you have a “Stretched-Out IRA Trust” in your documents. The rest of the Beneficiary Designation needs to be exact.)
Not convinced? Consider what 1% of your IRA is today: let’s say you’ve got $500,000 in there. What’s the harm if 1% — $5,000 — goes to the charity you pick after you die?
Besides, you can still use any or all of that $500,000 while you’re still alive. (If you spend it, oh well, that’s what you saved it for; the charity will get 1% of whatever is left.)
- The insurance policy isn’t doing you any good now, while you’re alive.
- The IRA or retirement plan can be tapped by you in any amount while you’re alive.
- Your endowment goes to the charity only when you’re gone, and it’s only a percentage of whatever is left.
Now you don’t have to redo your Wills or Trusts to make this work; it’s all in the “Designation of Beneficiary” forms. (However, you may want some lawyerly input if you have questions. You don’t want to cut off the 99% beneficiaries by doing the forms incorrectly.)
So as the holidays approach, do a good deed. Be like the Rockefellers and Woodruffs: endow something. And if 1% isn’t enough, give more.
A final thought: tell the charity that’s going to be the beneficiary. They’ll be excited to know about the wonderful gesture you’ve made.