Shining a Light

Shining a Light

Everyone at ReFrame Wealth is involved in philanthropy in one way or another—service to our communities is one of our core values. I was also raised by rabble-rousing parents who always encouraged me to do what I could to point out something in our society that needs reform. If you support a particular charity, or many of them, then you may be surprised to learn just how hard many financial institutions make it for you to leave your money to your chosen charitable organizations after your lifetime.


Every major financial institution has a post on its website extolling the virtues of naming charities as the beneficiaries of your IRA or retirement plan. And it really is a terrific outcome for many families. You can take an asset, like an IRA, that would be taxable to your heirs and give it to a non-taxpaying entity like a charity, which can then enjoy the full benefit of your gift. If you change your mind along the way, you don’t have to redo your entire estate plan; you can just change your beneficiary designation.

I’m sure we all assume, if we think of it at all, that at the death of the account owner, some paperwork is filled out, some procedure is followed, and the donor’s favorite charity has use of the dollars that were left to it for that purpose. Sometimes, and with some investment institutions, it works just fine.  The investment company is notified of the death of the account owner, asks the authorized representative of the charity where to send the funds, and the gift is settled in a few weeks. Other organizations insist on a Kafkaesque process that can last for months—even years! The resources the charity  expends to receive the gift often exceed the value of the gift itself. Though charities can hardly make this kind of assessment as financial institutions rarely disclose the amount of the gift before distribution.

When an individual (other than the person’s spouse) inherits an IRA, that person is required to set up an Inherited IRA. The funds from the decedent’s IRA are then transferred into the beneficiary’s inherited IRA, where the beneficiary can keep it or take it out as needed. To prevent money laundering, and for other regulatory purposes, the individual is required to provide their personal information, which includes their Social Security number, date of birth, as well as their income and net worth. This makes sense because there is a legitimate purpose for the collection of this information. The laws and regulations that require this apply to individuals but generally not to charities or other institutions.

So what happens if financial institutions neglect to create an alternate process for a charity to inherit the funds from an IRA? Whose personal information do you put on the form? The largest and most familiar financial firms in the US insist that the charity fills out the inherited IRA application and supplies the sensitive personal information of the signing representatives of the charity. Now imagine that part of your job at a charitable organization is to routinely supply your own sensitive personal information to multiple financial institutions for no legitimate purpose. Some organizations require that everyone with the authority to sign on their behalf provides their personal information, as well. So, if you work for a charity, you are giving up your Social Security number every day, then knocking on your boss’s door and asking for her information, and then your boss’s boss, and so on. Imagine asking Board members to disclose the same kind of sensitive information!

This has very real consequences.  Johni Hays of Thompson Associates volunteers on the RIFT project (Release IRA Funds Timely) and shared some of the recent problems they have helped charities work through.  Those include:

  • A non-profit who spent months providing the required signatures and information to a financial institution only to learn that the gift totaled $0.10.
  • A university calculated they could have given two full ride scholarships with the interest lost on an IRA claim they waited for months to receive.
  • At least one financial institution put the money into the account of a charity’s employee after demanding they provide their personal Social Security Number. This created a tax nightmare for the employee.
  • Some cases have been drawn out for years. The longest case we are aware of has been pending resolution for six years!
  • The third largest asset manager in the world has an exception process for charities, but only if you know enough to ask for it. If the charity is unaware of the alternate path they will be routed through the broken inherited IRA process.
  • Another household-name, Fidelity, has made their legal team unavailable for discussion and there are dozens of claims bogged down in their draconian process.

Charities already deal with lost gifts because financial institutions don’t expend the necessary resources to make sure the charity is properly notified when a donor has died and left a gift. They are required to either know ahead of time or spend their resources to track down the gift. Then, when the gift is discovered, their employees have no choice but to subject themselves to potential identity theft and invasion of privacy. This could all be solved by designing a process specifically for charities and creating a new form, which is a relatively trivial undertaking.

No financial institution I have spoken with has ever bothered to defend this practice as having a legitimate business purpose. I believe this issue persists because the charities don’t have natural advocates who know what is happening and can demand change. The donor who made the gift is deceased. The advisor for the family assumes their job is done once their client has passed away and the proper paperwork has been filed. The charity has to work with these financial institutions and can’t spend their resources to object too stridently because they simply do not have sufficient resources or are desperate for the financial support.

So what can we all do if we are concerned about this issue and want to support the charities we care about? At the same time, what can we do to protect the sensitive personal information of people who just come to work every day and try to make the world a better place? That depends on who you are. (See side graphic below.)

  • Independent Advisors. Let your custodians, who are the safekeepers of trillions of dollars for their advisory firms, know that you care about solving this issue. Bring it up at your next meeting. Ask them to explain their process, then ask for a dedicated contact if an organization should have an issue in the future.
  • Individual Investors. If you are giving to charities through your IRAs or retirement plans, then bring this up with your advisor or financial institution. Let them know their job is not done until your bequest is complete.
  • Executors, heirs, and friends of the deceased. It would be a kindness to reach out to the charitable organization, let them know they are a beneficiary, and offer contact information for the investment company. You can check back several months later to ensure the gift is complete. If it isn’t, ask if you can make a call on behalf of the organization.

My goal is to get the word out there and do what I can to encourage change. There are many professionals across disciplines who are working with financial firms, charities, and legislators to promote a better solution. Moving this problem to the front of mind for advisors and clients can only help that process. We expect our wishes to be carried out, so it’s up to all of us to ensure that our favorite charity receives our gifts without delay —and that their employees’ sensitive personal information isn’t sacrificed in the process.




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