A Problem for All | Sharpe Group blog
Posted September 30th, 2020

A Problem for All

What problem?

The problem, in my opinion, is that flawed software pervades society.

Cut to the chase: The problem extends far beyond charitable fundraising, but let’s focus on a major difficulty facing charities today. It’s getting an IRA beneficiary distribution from a financial institution.

You may ask, is this a software problem? Answer: Yes.

The financial institution’s tax reporting software reports to the IRS any distribution from an IRA. The software reports the distribution as being made to the named owner of the IRA.

Turns out, this reporting is correct while the individual who established the IRA is living. The problem is that when the individual dies and leaves the IRA to a charity, the software will report a distribution from the IRA to the charity as a distribution to the deceased individual, because his or her name is still on the IRA.

Such reporting would be incorrect of course. That’s why the financial institution insists that the charity set up an “inherited IRA” in its own name, so that a distribution from the “inherited IRA” to the charity will be reported correctly as a distribution to the charity.
There’s more to this story, but that is another story.

In my personal life, I’ve grown less than fond of automatic or robot customer service I’ve encountered on the telephone. Recently, for example, I dealt with one of these automated systems in trying to obtain phone and internet service from a major telecom. Getting the service was fairly painless. Making a change to the service afterward proved, however, to be frustrating to the point of impossible. The “individual” I dealt with over the phone threw up obstacle after obstacle.

Planned giving donors, who are mainly north of age 70, are less likely than PG officers to encounter the sort of problems described here. The one notable exception I’ve encountered was the husband (surviving spouse) of a woman who left her IRA to her college. He was flabbergasted that the IRA custodian made the college jump through hoops to get its IRA beneficiary distribution.

By Jon Tidd, J.D.


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