Charities receiving IRA gifts are facing delays of months or even years as banks and brokerages demand extensive paperwork, personal information and, in some cases, new accounts before releasing money left to them by donors.
Non-profit leaders and lawyers say the administrative hurdles are diverting scarce staff time from charitable work and can leave organisations weighing whether to abandon gifts intended to support their missions.
Retirement accounts can usually be left to a charity through a beneficiary designation without changing a will. The donation is removed from the donor’s taxable estate and the charity receives the funds without the income tax that could otherwise apply if the money passed to an individual.
But financial institutions have adopted differing procedures for distributing inherited IRAs and other beneficiary-designated assets, including 401(k)s, life insurance policies and brokerage accounts.
Rob Hilbert, president of the Iowa PBS Foundation, said his organisation once spent more than five years exchanging paperwork to obtain a gift 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,” he said. “But we can’t do it if we don’t receive the funds.”
Jon Kraus, executive director of gift planning at the University of Denver, said it took two years to collect an investment account worth $2 million. The university initially resisted requests to open an account and provide personal information about its chief financial officer, but eventually complied.
“That $2 million at 4.5% would have spun off $90,000 a year that we could have been awarding in student scholarships,” Mr Kraus said. “Instead it sat at the company in their assets under management.”
Lawyers said custodians generally do not have to tell charities or individuals that they have been named as beneficiaries, or disclose how much they are due.
Charities challenge account and identity demands
Johni Hays, an estate and charitable gift planner, said she had seen institutions ask for photographs of employees’ driving licences, personal asset information and consent to credit checks.
“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,” she said. “It’s this extraneous stuff that has gone too far.”
Melanie Sadek, chief executive of Valley Humane Society, said a two-and-a-half-year effort was needed to collect a $70,000 IRA gift. The animal-welfare organisation had been named as one of nine beneficiaries in 2021, but only learned of the bequest through the donor’s sister.
Ms Sadek said the charity’s paperwork was repeatedly rejected, despite her providing her Social Security number and personal details, along with those of two board members. The bank required all nine beneficiaries to complete the process within the same 90-day period, she said, and it took five months to coordinate their submissions.
Brad Conrad, vice-president of the LCMS Foundation, said he had supplied personal information at least 50 times since joining the organisation in 2019. He said he was concerned about identity theft and about consenting to a credit check while he and his wife were trying to buy a house.
“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,” Mr Conrad said. “Because I love the mission, I’m OK putting myself at risk, but yes, it is something that weighs on me.”
Some charities have declined to identify the financial institutions involved, citing donor privacy and fears of retaliation.
State reforms seek faster IRA transfers
Advocates are pressing for laws requiring financial firms to release beneficiary assets promptly and without forcing charities to open new accounts. Six US states have passed legislation over the past two years, while California is expected to become the seventh if a bill awaiting Governor Gavin Newsom’s decision is approved.
Colorado’s law, signed in April, requires custodians to transfer assets within 60 days of receiving an affidavit from a charity claiming the funds. The state measures generally prevent charities from being required to open an account, although Iowa’s law is an exception.
Jon Kraus helped campaign for the Colorado reform and said the issue would become more significant as the transfer of wealth brought a larger number of bequests and retirement-account gifts. Cerulli Associates estimates that $18 trillion will be donated to charitable and philanthropic causes by 2048.
“There’s trillions of dollars sitting in these IRA and stock accounts,” Mr Kraus said. “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.”
State efforts have faced opposition from financial industry lobbyists, particularly over proposals requiring firms to tell charities they have been named as beneficiaries. Illinois and Tennessee have adopted such provisions, while a North Carolina bill introduced in March 2025 has remained stalled in the state Senate since July.
California State Senator John Laird, who introduced the bill there, said the proposed law would cover all beneficiaries, rather than charities alone.
“It’s considered a niche issue for anybody it doesn’t affect, and then when you’re affected, it is not a niche issue,” he said. “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.”
Financial firms cite fraud-prevention rules
Financial institutions often refer to anti-money-laundering and customer-identification requirements when explaining their procedures, according to lawyers. However, five lawyers said custodians were not legally required to make charities open new accounts to receive inherited IRA funds.
A 2024 administrative ruling by the Financial Crimes Enforcement Network said Bank Secrecy Act rules do not require broker-dealers to make charities open accounts for such payments. If a firm chooses to impose that condition, it must collect identifying information from a charity official under customer due-diligence rules.
David Cahoone, who was Brown University’s director of philanthropic strategies and planned giving until 2024, said the approach was not universal among financial institutions.
“They don’t have to require it. The proof is other major financial institutions are not requiring charities to jump through all those hoops,” he said.
Edward Jones and Merrill Lynch were cited by charity leaders and lawyers as easier institutions to work with. Hays said Fidelity and Schwab were among the large firms frequently associated with requirements that could delay or prevent distributions from beneficiary-designated accounts.
Fidelity declined to comment. Schwab said its procedures were intended to carry out clients’ wishes while meeting legal, tax-reporting and fraud-prevention obligations.
The firm said it continually reviewed ways to simplify the inheritance process and, after being notified of a client’s death, made every reasonable effort to identify and contact beneficiaries and guide them through receiving inherited assets.
Iowa State Representative Bill Gustoff, who introduced the state’s reform bill, said some institutions might have genuine concerns about liability, including the possibility that distributed funds could later be reclaimed to meet a donor’s estate debts.
He also alleged that some firms had financial incentives to keep assets under management or open accounts and charge fees. “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,” he said.
Experts continue to support IRA donations as a straightforward and tax-efficient form of charitable giving. They say donors can reduce future problems by giving their chosen charity a copy of the beneficiary designation form and the account number, and by notifying it in advance.
Ms Hays also advised donors to consider moving their accounts to firms with smoother procedures, while stressing that notifying a charity did not prevent the donor from later using the money themselves.
