For American workers, the Individual Retirement Account is a tax-advantaged savings account for retirement. But in the nonprofit world, the IRA presents an opportunity for supporters to give. It is common for donors to leave their IRA, not to family beneficiaries who would face substantial income taxes from the inheritance, but to a charity that can receive it tax-free.
On the IRA owner’s death, the charity submits a “beneficiary form” — furnished by the IRA administrator — with the name and taxpayer identification number of the charity, and perhaps a corporate resolution that the signatory has authority to act for the charity, and a copy of the death certificate. In 60 days, a lump sum payment is made to the charity to fulfill the wishes of the decedent.
In recent years, however, many well-known IRA administrators (such as Fidelity, Charles Schwab, Ameriprise, and Vanguard) advised charities that they must create an “inherited IRA,” often called a stretch IRA or a beneficiary IRA, in order to receive the bequest. This is contrary to the law and to the nature of the instrument itself. Even worse, they demand that, because the charities are creating a “new account” for a “new customer,” they must comply with the Patriot Act — what provision they do not say — by providing personal, highly sensitive, and unnecessary information regarding not the charity, but its employees.
Thus, for example, some administrators demand the name, home address, home telephone number, Social Security number, driver’s license number, and net worth statement of the charity’s directors, officers, and even low-level administrative employees.
Remember now, it is the charity that is the IRA beneficiary, not the individuals whose personal information is demanded by the administrator. In fact, all the administrator should be seeking, and all it is entitled to, is the nonprofit organization’s tax identification number. It has no business collecting personal, private, and sensitive information regarding directors, officers, and employees.
It is not surprising, therefore, with national news on the data breaches at large corporations such as those represented by these administrators, that people subjected to these demands fear identity theft and with it the months and even years of heartache they will endure.
The intrusive and unwelcome probing by these financial administrators into the lives of people who seek only to perform their charitable work is bad enough. Worse is the arrogant and officious way these administrators, who hide behind the Patriot Act, make their demands. “Just do the paperwork and you’ll get your money faster than if you ask so many questions.”
Even after meeting these draconian demands, however, and creating a new account, which is not required in the first place, the charity in this situation will find that the funds are not paid quickly. Instead, it still takes months and yes, even years, for the charity to receive what the decedent intended.
It is not just that charities are being subjected to this abuse, that their employees are being forced to disclose personal information, and that they still face months and even years getting promised funding. The real issue is that they are not able to do the good that their benefactors intended. Surely, long dead owners of these IRAs must be rolling over in their graves.
IRA owners who are still living should contact their administrators and demand to know if they are among these bandits and, if so, move their IRAs from their clutches.
Mr. Pendley, an attorney, is president of Mountain States Legal Foundation and author of Sagebrush Rebel: Reagan’s Battle with Environmental Extremists and Why It Matters Today (Regnery, 2013).
