Rules current as of October 2026. Retirement account distribution rules and estate tax provisions should be confirmed against current IRS guidance before they are applied to a client plan.
Key takeaways
- Much of a client’s charitable legacy can pass outside the will, through beneficiary designations on retirement accounts, life insurance, and payable-on-death or transfer-on-death accounts.
- Pre-tax retirement accounts are often the most tax-efficient asset to leave to charity, because a tax-exempt charity does not pay income tax on the distribution that an individual heir would.
- Community foundations offer several fund types that turn a client’s intent into a lasting structure, from supporting named nonprofits to a broad cause area that can adapt over time.
- If a client has a donor-advised fund (DAF), its fund agreement, not the will, generally controls what happens to it at death. That document belongs in the estate plan review.
Why do clients choose community foundations for legacy giving?
Clients with long-term charitable goals often want three things from a legacy plan: their gift should support the causes they care about, it should keep working if circumstances change, and someone with local knowledge should be responsible for carrying it out.
A community foundation is a public charity that holds many charitable funds, each with its own purpose, and makes grants within a defined region. For estate planning, that structure offers:
- One destination for several intentions. A client can support specific nonprofits, a cause area, scholarships, or a permanent endowment through one organization.
- Continuity when a named charity changes. Community foundations have variance power under Treasury regulations, which allows the foundation to redirect a fund’s distributions if the original purpose becomes unnecessary, incapable of fulfillment, or inconsistent with community needs (Treas. Reg. §1.170A-9(f)(11)(v)(B)).
- Local grantmaking expertise. Grants are made by staff who work directly with nonprofits in the region the client cares about.
Pinellas Community Foundation (PCF) has served Pinellas County since 1969, has invested more than $140 million in the community, and holds more than 400 charitable funds supporting more than 665 nonprofits.
Which assets are best left to charity?
The same dollar amount can carry very different tax consequences depending on the asset. Leaving the most heavily taxed assets to charity, and the most tax-favored assets to individuals, can increase what both receive.
| Asset | If left to individual heirs | If left to a charity or community foundation fund |
|---|---|---|
| Traditional IRA, 401(k), or other pre-tax retirement account | Distributions are taxable income to the heir (income in respect of a decedent). Most non-spouse beneficiaries must empty the account within 10 years. | A tax-exempt charity generally does not owe income tax on the distribution. The transfer may also qualify for a federal estate tax charitable deduction. |
| Roth IRA | Qualified distributions are generally income tax-free to the heir | No added income tax advantage compared with leaving it to heirs |
| Appreciated taxable investments or real estate | Basis generally steps up to fair market value at death, reducing capital gains for heirs | No capital gains advantage compared with leaving it to heirs |
| Life insurance proceeds | Generally received income tax-free | Can be useful for charitable gifts, but carries no special income tax advantage |
Sources: IRS Publication 559 (income in respect of a decedent); IRS Publication 590-B (inherited IRAs and the 10-year rule); IRS Publication 551 (basis of inherited property); Instructions for Form 706 (estate charitable deduction).
How do beneficiary designations to a community foundation work?
A beneficiary designation is a contract with the account custodian or insurer. It generally controls who receives the asset regardless of what the will says, so it should be reviewed alongside the will and trust documents.
Practical drafting points:
- Name the organization and the fund precisely. Use the foundation’s full legal name and the specific fund the client intends to benefit.
- Use percentages for split designations. When an account is divided between individuals and a charity, percentage designations adjust automatically as the account value changes.
- Consider separate accounts. Where appropriate, using separate retirement accounts for charitable and individual beneficiaries may simplify administration and beneficiary distribution planning.
- Name contingent beneficiaries. A contingent designation prevents the account from defaulting to the estate if a primary beneficiary does not survive.
- Confirm custodian requirements. Some custodians require their own forms or additional information for organizational beneficiaries.
How can a client’s intent be matched to a fund type?
PCF offers several fund types that can be established during life or through an estate plan. Each answers a different client goal.
| Client goal | PCF fund type | How it works |
|---|---|---|
| Direct a lasting gift to the community through a will or trust | Planned Legacy Fund | The client names PCF in a will, trust, or beneficiary designation and signs a fund agreement naming the charities or causes to support. The client can update those choices by amending the agreement, without revising the will. |
| Support specific nonprofits on an ongoing basis | Designated Fund | Directs ongoing support to one or more nonprofits named when the fund is created |
| Support a cause area that can adapt over time | Field of Interest Fund | The donor names a broad cause, such as education, environment, or health; PCF directs grants within that field using local knowledge |
| Create a permanent legacy | Planned Legacy Fund Utilizing an Endowment Fund | Provides long-term charitable support through an invested fund governed by an established spending policy. |
| Support students or career training | Scholarship Fund | The donor defines the focus, such as field of study, financial need, or residency |
| Keep family involved in giving during life | Donor-Advised Fund | The donor recommends grants to IRS-qualified charities over time; opens with as little as $5,000 |
Fund minimums and criteria vary by fund type.
What happens to a donor-advised fund when the donor dies?
This is one of the most frequently missed items in an estate plan review. A DAF is owned by the sponsoring organization, and the donor’s advisory privileges are governed by the fund agreement. At death, sponsors commonly offer some combination of:
- Successor advisors, such as children or other family members, who continue recommending grants
- Named charitable beneficiaries, who receive the remaining balance
- A default provision, under which the balance stays with the sponsor for its charitable purposes if no instructions exist
National sponsors such as Fidelity Charitable and Schwab Charitable each publish their own succession policies, as do community foundations. The details, including how long successors may advise and whether the fund can convert to another fund type, vary by sponsor.
What to do in practice:
- Ask every client whether they have a DAF, and where.
- Request the current succession form or fund agreement from the sponsor and review it with the will and trust.
- Coordinate the plan. A DAF’s succession instructions should match the client’s broader charitable intent and the family’s capacity to carry it out.
- Discuss options with the sponsor directly.
A checklist for estate-planning attorneys
- Inventory all assets that pass by beneficiary designation, and review each designation with the client.
- Identify pre-tax retirement accounts as candidates for charitable designations.
- Confirm the full legal name of each charitable beneficiary and the specific fund.
- Ask whether the client has a DAF at any sponsor, and obtain its succession instructions.
- Document charitable intent clearly enough that the receiving organization can carry it out decades from now.
- Contact the receiving community foundation before signing to confirm fund options and designation wording.
How PCF works with estate-planning attorneys
PCF works alongside you, not in place of you. PCF can review a client’s charitable goals, confirm fund options and designation wording, and document the client’s intent for the future, while the client relationship stays with you.
Refer a client or request designation wording for a plan in progress: Contact Meg Lokey, Vice President of Philanthropy, 727-306-3142, ml****@********cf.org.
Frequently asked questions
Why is a traditional IRA often the best asset to leave to charity?
Distributions from a pre-tax retirement account are taxable income to individual heirs. A tax-exempt charity does not pay income tax on the same distribution, so more of the account’s value goes to its intended purpose.
Can a client name a community foundation fund as an IRA beneficiary?
Generally yes. The designation should name the foundation’s full legal name and the specific fund, and should follow the custodian’s requirements.
What happens to a donor-advised fund after the donor dies?
It depends on the fund agreement. Common options are successor advisors, named charitable beneficiaries, or a default provision that keeps the balance with the sponsor. Review the agreement as part of the estate plan.
What is a Planned Legacy Fund at PCF?
A Planned Legacy Fund lets a donor direct a lasting gift to the community through their will or trust.
What happens if a charity named in an estate plan no longer exists?
Community foundations have variance power under Treasury regulations, which allows the foundation to redirect a fund’s distributions if its original purpose can no longer be served. Clear drafting still matters.
Government sources
- IRS Publication 559, Survivors, Executors, and Administrators: irs.gov/publications/p559
- IRS Publication 590-B, Distributions from Individual Retirement Arrangements: irs.gov/publications/p590b
- IRS Publication 551, Basis of Assets: irs.gov/publications/p551
- Instructions for Form 706, United States Estate Tax Return: irs.gov/instructions/i706
- IRS Publication 526, Charitable Contributions: irs.gov/publications/p526
- Treasury Regulation §1.170A-9(f)(11), Community trust rules: ecfr.gov
Verification note: This article reflects federal tax rules as understood in October 2026. Inherited account distribution rules and estate tax provisions should be confirmed against current IRS publications before applying them to a client plan. PCF fund minimums, criteria, and succession options should be confirmed with PCF. This article is educational and is not tax or legal advice.
