For many high-net-worth individuals, leaving a lasting legacy through charitable giving is a cornerstone of their estate planning. Designating a nonprofit organization as a beneficiary of a retirement account, such as an Individual Retirement Account (IRA), upon death is widely considered one of the most straightforward and tax-efficient methods to achieve this philanthropic goal. The appeal is clear: such a bequest can be subtracted from the donor’s taxable estate, and the assets flow to the charity free from the income taxes that would typically be levied on an individual inheritor. However, what appears to be a simple act of generosity is increasingly entangled in a web of complex bureaucratic demands and protracted delays imposed by financial institutions, jeopardizing donor intent and diverting critical resources from charitable missions.
The Emerging Challenge in Charitable Bequests
Nonprofit leaders, legal experts, and philanthropic advisors are sounding the alarm over a growing and often opaque obstacle course presented by certain brokerages and banks when charities attempt to collect these designated funds. While the process should ideally be seamless, involving merely the transfer of assets from the deceased donor’s account to the named charitable beneficiary, the reality is frequently far more arduous. Charities report encountering demands that range from opening new accounts with the financial institution to providing highly sensitive personal information belonging to their employees or board members, such as Social Security numbers, home addresses, or even consent for credit checks. These requests are often made without prior disclosure of the gift’s value, leaving nonprofits to expend valuable time and resources chasing an unknown sum.
The consequences of these procedural bottlenecks are profound. Scarcity of staff time, particularly in smaller organizations, means that personnel are diverted from mission-critical work to navigate what can become a multi-year administrative battle. In extreme cases, the sheer burden and invasive nature of the demands have forced charities to consider, or even ultimately decide, to forgo substantial gifts, directly undermining the donor’s last wishes and depriving communities of much-needed support. Rob Hilbert, president of the Iowa PBS Foundation, shared a striking instance where his organization spent over five years in a back-and-forth paper trail to receive a gift that eventually amounted to $6,000. While acknowledging this as an unusual duration, he underscored that pushing back against what he characterizes as invasive demands from brokerages is a frequent and draining burden.
Understanding the Tax Efficiency of IRA Beneficiaries
To fully appreciate the gravity of these collection issues, it is essential to understand why IRAs are a preferred vehicle for charitable giving. When an individual inherits an IRA, the distributions are typically subject to income tax. This means that a significant portion of the inheritance can be lost to taxation before it ever reaches the beneficiary. However, charities, as tax-exempt organizations, are not subject to income tax on these distributions. By naming a charity as the direct beneficiary of an IRA, the donor ensures that 100% of the account’s value goes to their chosen cause, maximizing the philanthropic impact while also removing the asset from their taxable estate. This "double tax benefit" — avoiding estate tax and income tax — makes IRAs an exceptionally attractive option for legacy giving, particularly for donors who hold substantial wealth within these accounts. The rise in planned giving, particularly through retirement accounts, aligns with broader demographic shifts. As the Baby Boomer generation, the wealthiest in U.S. history, enters its later years, financial institutions and philanthropic organizations anticipate a "great wealth transfer." Cerulli Associates estimates that a staggering $18 trillion is expected to be donated to charities and philanthropic causes by 2048, much of it originating from these very retirement and investment accounts. The current friction in collecting these gifts therefore represents a critical vulnerability in the future funding landscape of the nonprofit sector.
A Patchwork of Policies and Protracted Delays
The core of the problem lies in the inconsistent and often stringent policies of various financial institutions. While some firms, such as Edward Jones and Merrill Lynch, are cited by charity leaders as being relatively cooperative in releasing designated funds, others, notably large brokerage firms like Fidelity and Charles Schwab, are frequently identified as enforcing requirements that lead to significant delays and complications. Fidelity, for instance, reported holding 20.3 million active IRA accounts as of the end of June, indicating the potential scale of the issue. Charles Schwab, while not disclosing its exact IRA account figures, also manages a substantial volume of client assets.
When queried about these practices, Fidelity declined to comment. A spokesperson for Charles Schwab stated that its policies are designed to execute clients’ wishes while simultaneously meeting legal, tax-reporting, and fraud-prevention obligations. The representative added that Schwab "continually evaluates opportunities to simplify the inheritance experience for all beneficiaries" in accordance with these requirements and is committed to carrying out client instructions and distributing inherited assets. They further noted Schwab’s efforts to identify and contact named beneficiaries and guide them through the inheritance process. However, the experiences of nonprofits frequently contradict the notion of a simplified or guided process.
Jon Kraus, executive director of gift planning at the University of Denver, recounted a two-year ordeal to collect a $2 million donor’s investment account. The university initially resisted the financial institution’s demands for opening a new account and providing personal information for its then-chief financial officer. Ultimately, facing the prospect of losing the significant donation, they conceded. Kraus lamented the opportunity cost: "That $2 million at 4.5% would have spun off $90,000 a year that we could have been awarding in student scholarships. Instead, it sat at the company in their assets under management." This anecdote vividly illustrates how institutional delays directly impede a charity’s ability to fulfill its mission.
The demands often extend beyond mere account opening. Lawyer Johni Hays, an estate and charitable gift planner who volunteers her time to assist nonprofits, has documented instances where institutions have requested photos of employees’ driver’s licenses, personal asset information, and even consent to credit checks. Charities are generally willing to provide standard organizational documentation—tax IDs, articles of incorporation, 501(c)(3) status—which they have routinely supplied for decades. Hays emphasizes, "It’s this extraneous stuff that has gone too far."
Melanie Sadek, CEO of Valley Humane Society, an animal-welfare nonprofit, became a vocal advocate for reform in California after a grueling two-and-a-half-year struggle to collect a $70,000 IRA gift. In 2021, her organization was named one of nine beneficiaries of a donor’s IRA, a fact Sadek only learned through the donor’s sister. The charity’s paperwork was repeatedly rejected over two years, even after Sadek provided her Social Security number and personal information for herself and two board members. The core issue, she discovered, was a bank policy requiring all nine beneficiaries to complete their paperwork within the same 90-day window. Coordinating with the other beneficiaries—whose names had to be painstakingly obtained from the donor’s sister—and submitting all documentation on the same day proved to be an immense logistical challenge.
The Human Cost and Legal Contradictions
Beyond the financial and operational strain, these policies impose a significant personal burden on nonprofit employees. Brad Conrad, Vice President of the LCMS Foundation, which supports the Lutheran Church, revealed he has provided personal information at least 50 times since joining the foundation in 2019. He expressed profound worry about identity theft in the event of a data breach at any of the numerous institutions now holding his sensitive details. Last year, the concern was particularly acute as he and his wife were in the midst of buying a house, making a credit check consent an unwelcome risk. "This is not something that I anticipated when I took this job, and I don’t love doing it. My wife and three kids didn’t sign up for any of that," Conrad stated. "Because I love the mission, I’m OK putting myself at risk, but yes, it is something that weighs on me."
Financial institutions frequently invoke anti-money laundering (AML) and customer identification program (CIP) rules, stemming from legislation like the Bank Secrecy Act (BSA) and the Patriot Act, as the basis for these stringent protocols. These regulations were primarily designed to prevent financial crime, including terrorism financing and illicit money flows. However, a coalition of government agencies, including the Financial Crimes Enforcement Network (FinCEN) — the primary regulator for AML — has issued guidance that directly challenges the necessity of these demands in the context of charitable bequests.
In 2020, FinCEN issued a fact sheet explicitly reminding banks that the U.S. government "does not view the charitable sector as a whole as presenting a uniform or unacceptably high risk of being used or exploited for money laundering, terrorist financing (ML/TF), or sanctions violations." More definitively, a 2024 administrative ruling from FinCEN clarified that BSA laws do not mandate broker-dealers to require charities to open new accounts to receive inherited IRA funds. While the ruling states that if a broker-dealer chooses to require a new account, it must then collect identifying information from a charity official per customer due-diligence rules, it underscores that the initial requirement for a new account is discretionary, not legally mandated. David Cahoone, a lawyer and former director of philanthropic strategies at Brown University, emphasized this point: "They don’t have to require it. The proof is other major financial institutions are not requiring charities to jump through all those hoops." Representatives for FinCEN and the Treasury Department declined to comment further on the matter.
Motivations Beyond Compliance
While some financial institutions may genuinely cite liability concerns, such as the need to reclaim funds if a donor’s estate debts emerge, critics argue that other motivations are at play. Iowa State Representative Bill Gustoff, who is also a lawyer and introduced Iowa’s reform bill after learning of the issue from Johni Hays, suggested that financial incentives often drive these practices. By requiring charities to open new accounts, institutions can potentially retain assets under management for longer periods, collect associated fees, and even explore cross-selling opportunities for other financial services. "I think, unfortunately, there are some who are just unscrupulous who are trying to hold on to funds for various reasons or open and close accounts for various reasons," Gustoff commented. "I think that’s a lot of the driver behind this, just money and profit. And the person who left it to them is dead, so who’s going to complain, right?"
J. Scott Kilpatrick, another lawyer involved in this area, asserts that regardless of the underlying motivation, financial firms that actively market IRAs as estate-planning tools to wealthy clients have a fundamental obligation to establish clear and efficient systems for distributing these funds upon a client’s death. "You would think that if you’re an international, multibillion-dollar financial custodian… that you would have it built out so that when the person does pass, you are ready to fulfill the promise," Kilpatrick said. "But many don’t."
Legislative Action and Future Outlook
The escalating frustrations have spurred a wave of legislative action at the state level. In the past two years, six states have successfully passed bills aimed at streamlining the process of collecting beneficiary-designated funds, and California is poised to become the seventh, with a donor intent bill awaiting Governor Gavin Newsom’s signature. Iowa’s reform law, the first to pass in 2024, set a precedent. Advocates in Missouri and Florida are actively working on similar efforts.
These state-level laws share common objectives: mandating timely transfer of assets and prohibiting financial institutions from requiring charities to open new accounts. Colorado’s law, championed by Jon Kraus and signed in April, for example, stipulates that custodians must transfer assets within 60 days of receiving an affidavit from the charity claiming the funds. While Iowa’s version faced no opposition, Hays noted that lobbying efforts from the finance industry have created pushback in other states, particularly concerning provisions that would require institutions to proactively inform charities that they are beneficiaries. Despite this, Illinois and Tennessee successfully included such notification requirements in their respective laws. North Carolina’s bill, introduced in March 2025, has stalled in the state Senate since July, illustrating the ongoing challenges.
California State Senator John Laird, author of his state’s bill, expressed optimism about the broader impact of these reforms, noting that the California legislation applies not just to charities but to all types of beneficiaries. "It’s considered a niche issue for anybody it doesn’t affect, and then when you’re affected, it is not a niche issue," Laird observed. "If you were left a large bequest for somebody’s house, and you don’t know for three years, that is just a problem that needs to be addressed."
As these state-by-state reforms gain traction, the long-term goal for many advocates is a uniform national standard. Jon Kraus believes such legislation is critical, especially as the "great wealth transfer" is expected to trigger an unprecedented wave of bequests and retirement-account gifts. "There’s trillions of dollars sitting in these IRA and stock accounts," Kraus stated. "Getting this right and having a process, not just state-by-state, but hopefully, eventually at the national level — it’s going to have a huge impact on the ability of nonprofits to get these funds quickly and be able to use them for what the donor intended."
Guidance for Donors and Nonprofits
While systemic change progresses, experts advise donors and charities to take proactive steps to mitigate potential hurdles. Anne Calder, vice president of philanthropy at the Quad Cities Community Foundation, recommends that donors simplify the process for their chosen charities by providing them with a copy of their beneficiary designation form and their account number. This transparency can significantly reduce the investigative work required by nonprofits.
Johni Hays suggests that donors "vote with their feet" by choosing financial firms known for more streamlined and charity-friendly practices. She also advises donors to inform charities in advance about their designation, although she acknowledges that some donors may be hesitant, fearing the charity might anticipate a gift that ultimately doesn’t materialize if the donor needs to use the funds during their lifetime. However, Hays reassures, "the charities are obviously fine with that. It’s the donor’s money."
Despite the current headaches, the consensus among experts remains that designating a charity as an IRA beneficiary is an exceptionally tax-efficient and impactful form of giving. The challenges underscore a critical need for financial institutions to align their operational policies with regulatory guidance and the philanthropic intent of their clients. As the volume of wealth transferring to charitable causes continues to grow, ensuring a smooth and respectful process for these legacy gifts will be paramount to supporting the vital work of nonprofits across the nation and honoring the enduring generosity of donors.
