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Nonprofit Law/Charity named as beneficiary of IRA

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Question
Our 501c3 organization was named along with two other nonprofits as a beneficiary of an individual's IRA.  We are being told that the organization has to set up an IRA in order to receive the proceeds.  Is this true and will the organization be able to withdraw at any time without penalty?

Answer
I have in my profile that this free forum is only for general questions about IRS federal exemption issues of 501(c)(3) organizations. Your matter is not an exemption issue but an issue as to donations and IRA regulations.  Even though this free forum is not for such issues, I would like to give you some information.

The organization does not need to set up an IRA account to be the beneficiary, but each bank and financial services firm has different forms that the individual would have to complete.  For good general information see http://www.wsrp.com/leaving-ira-money-charity-tax-smart-strategy

Generally, at any time before death, the individual could change the beneficiaries without the permission of the current beneficiaries (the three 501(c)(3) organizations).  Until death, the beneficiaries can not withdraw anything, and, after death they can withdraw whatever they want.

Because the general rule is that an individual could change the beneficiaries anytime before death, I usually would recommend to my charities in such a situation that we consider drafting an enforceable agreement that the individual would sign.  That is a separate agreement from the beneficiary designation from used by the bank or financial institution.  That separate agreement would protect the current beneficiaries (the three 501(c)(3) organizations).  Such work would be beyond the scope of this free forum.  If you want to hire me, send me an email directly to my email address below and I will quote you my fees.

Harvey Mechanic
Attorney at Law
Harvey108@hotmail.com

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather more information.

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Harvey Mechanic

Expertise

I am an attorney and I volunteer time to answer general questions about U.S. Federal income tax issues of nonprofit 501(c)(3) public charities only. Those questions could be about establishing and maintaining legal requirements for such non-profit organizations in the United States, including Internal Revenue service filings and requirements. I will not be working on this free forum to answer questions about Nonprofit's possible unrelated or for-profit businesses or how to fill out forms. This forum is only for general questions about federal tax law, not as the law applies to your specific situation. If you do not make your question public then I will not be spending much of my donated time on answers that would not benefit the public. If you have other questions, please contact me at Harvey108@hotmail.com I will reply from my email. In any case, do not reveal confidential information to me until after I have contracted with you to provide personal legal services. My responses on this forum are intended to be general statements of law, should not be relied upon as legal advice, and do not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather extensive information about the situation. To search my previous answers you can do a Google search by "site:allexperts.com/q/nonprofit" without the quotes and then add your search terms before hitting enter.

Experience

I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar and I have maintained my status with the Bar since that time.

Education/Credentials

B.S. Columbia University in New York City, 1970

J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude.


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