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Retired Military Finances: WOD = Pecuniary Bequest Thumbnail

Retired Military Finances: WOD = Pecuniary Bequest

Taxes Estate Planning

Even though I've been helping active and retired military members and their families with their financial and tax planning for close to 15 years, I still actively engage in continuing education. For one, I enjoy it. I also more than occasionally learn something new. That happened recently. I learned the word/phrase Pecuniary Bequest.

A pecuniary bequest is a specific dollar amount designated in a will or trust promised to a particular beneficiary. For example, "I leave $40,000 to my sister, Jane" or "I leave $30,000 to My Favorite Charity". The second one is a problem.

The problem starts if an estate or trust is named as the beneficiary of an IRA. It is compounded if the there is a pecuniary bequest to a charity. The kill shot occurs if the pecuniary bequest is satisfied with IRA funds. Here is what happens.

  • The trust or estate must report the IRA distribution as taxable income
  • The trust is not allowed to take a deduction for the contribution to charity
  • The trust or estate pays the tax on the distribution...ouch

So, the solution is to not use IRA funds to satisfy the pecuniary bequest. Not so fast, Sparky. What if the only funds the estate or trust has are the IRA assets? The trustee or executor may not have a choice on how to fund the pecuniary bequest.

How do You Avoid the Problems with Pecuniary Bequests?

This one is pretty easy. Don't make Pecuniary Bequests:

  • Describe your charitable contribution as a percentage of your estate rather than a dollar amount - It's no longer a pecuniary bequest
  • Name the charity as a full or partial beneficiary of your IRA - The IRA is never a part of your trust or estate

Military Finances are Different

Granted, pecuniary bequests could affect a military member or a civilian. But in many cases tax law and financial options are different for an active duty or retired servicemember. That's why we think Active or Retired Senior Military Officers and NCOs should work with a financial planner that deals with your unique circumstances each and every day. If you'd like to find out how the team at C.L. Sheldon works with people just like you, use the button below to schedule a free, initial consultation.

If you like this article, you might find the following blog posts interesting:

Retired Military Finances 401: IRA Considerations in the Year Dad (or Mom) Passes Away


Retired Military Finances 201: Do You Have to File Taxes for a Loved One Who Has Passed Away?


Retired Military Finances 301: I'm Going to Inherit a House. Now What?


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