Dead Donors' IRA Gifts Stall at Brokerages, Charities Say

The Iowa PBS Foundation once spent more than five years shuttling paperwork back and forth with a financial firm to collect a bequest from a deceased donor's retirement account. The gift turned out to be worth $6,000.

"These contributions are important, because a person has chosen to leave part of what they worked their entire life for to support our mission, and we want to honor that designation," said Rob Hilbert, president of the Iowa PBS Foundation. "But we can't do it if we don't receive the funds."

Nonprofit leaders and lawyers told CNBC that banks and brokerages routinely delay or complicate the transfer of inherited IRA assets — a giving vehicle prized by wealthy donors because it is simple and tax-efficient. The assets pass directly to a named charity, free of the income taxes an individual heir would owe, and reduce the taxable estate. But collecting them can take months or even years.

The costs of delay are concrete. Jon Kraus, executive director of gift planning at the University of Denver, said it once took two years to collect a donor's investment account worth $2 million. The university initially resisted the institution's demands to open an account and hand over personal information on its then-chief financial officer, but ultimately complied.

"That $2 million at 4.5% would have spun off $90,000 a year that we could have been awarding in student scholarships," Kraus said. "Instead it sat at the company in their assets under management."

Invasive demands

Experts said IRA custodians sometimes demand personal data on charity staff or board members — Social Security numbers, home addresses, driver's license photos, personal asset information, even consent to credit checks — in some cases before disclosing the gift's value. Lawyer Johni Hays, who has spent a decade helping charities push back, said she has seen all of these requirements.

"Charities are, frankly, willing to give their tax ID, their articles of incorporation, their 501(c)(3) status — all those things they have given for decades and decades," Hays said. "It's this extraneous stuff that has gone too far."

Lawyers said custodians are generally not required to notify nonprofits that they are beneficiaries, or how much they are owed. Melanie Sadek, CEO of Valley Humane Society, said her organization learned it was one of nine beneficiaries of a 2021 IRA gift only through the donor's sister. The bank required all nine beneficiaries to complete paperwork within the same 90-day window. It took two and a half years total to collect the $70,000 gift.

Brad Conrad, vice president of the LCMS Foundation, said he has provided his personal information at least 50 times since joining the foundation in 2019. "Because I love the mission, I'm OK putting myself at risk, but yes, it is something that weighs on me," he said.

Regulators push back

Firms often cite anti-money-laundering and customer-identification rules, but five lawyers told CNBC custodians are not legally required to force charities to open accounts. FinCEN said in a 2024 administrative ruling that Bank Secrecy Act laws do not require broker-dealers to make charities open new accounts to receive inherited IRA funds.

"They don't have to require it. The proof is other major financial institutions are not requiring charities to jump through all those hoops," said lawyer David Cahoone, Brown University's director of philanthropic strategies and planned giving until 2024. Charity leaders cited Edward Jones and Merrill Lynch as easier to work with. Hays named Fidelity and Schwab as two of the biggest firms known for requirements that can cause delays. Fidelity, which held 20.3 million active IRA accounts as of the end of June, declined to comment.

A Schwab spokesperson said the firm's policies "are intended to execute clients' wishes while meeting legal, tax-reporting and fraud-prevention obligations," and that Schwab "continually evaluates opportunities to simplify the inheritance experience for all beneficiaries."

States step in

Iowa passed the first reform law in 2024. Six states have now passed bills requiring timely transfers, and California's donor-intent bill sits on Gov. Gavin Newsom's desk. Colorado's law requires custodians to transfer assets within 60 days of receiving a charity's affidavit. Hays said finance industry lobbyists have pushed back in some states, particularly on requirements to notify charities of their beneficiary status; Illinois and Tennessee succeeded in including that provision.

Iowa State Representative Bill Gustoff, who introduced his state's bill, pointed to financial incentives behind the delays. "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?" he said.

The stakes will grow. Cerulli Associates estimates $18 trillion will flow to charities and philanthropic causes by 2048 as the great wealth transfer triggers a wave of bequests. Kraus, who championed Colorado's reform signed into law in April, said a national process "is 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."

In the meantime, advisors say donors can act now: give charities a copy of the beneficiary designation form and account number, or move assets to firms with smoother practices. As Hays put it, donors can vote with their feet.