Naming a charity as the beneficiary of an individual retirement account is one of the simplest ways for donors to leave a legacy while enjoying tax advantages. However, nonprofit leaders and attorneys warn that a growing number of obstacles are making it increasingly difficult for these organizations to actually collect the funds. In most cases, a donor can directly leave an IRA to a nonprofit without modifying a will, and the asset is excluded from the taxable estate, passing directly to the charity free of the income taxes that heirs would otherwise owe.

Yet experts say charities often spend months or even years navigating bureaucratic hurdles to secure these donations. Some brokerages and banks require nonprofits to open new accounts with the institution before releasing IRA assets, frequently demanding extensive and sometimes sensitive documentation. In certain instances, IRA custodians request personal information about nonprofit employees or board members, such as Social Security numbers and home addresses, without even disclosing the donation amount. Charities are forced to devote scarce human resources to chasing funds meant for public benefit, and in some cases, they simply abandon the gift altogether.

"This donation is significant. The donor chose to support our mission with a portion of their life's savings, and we want to honor that wish," said Rob Hilbert, president of the Iowa Public Television Foundation. "But without the funds, none of it matters." Hilbert cited one example where the foundation spent over five years exchanging paperwork before finally receiving a donation valued at just $6,000. While he acknowledged this was an extreme case, he noted that such excessive information requests from brokers have become a routine burden for the foundation.

Lawyers point out that IRA custodians are generally under no obligation to proactively notify nonprofits or individuals that they are the beneficiaries of an estate or how much they stand to receive. Jon Krause, executive director of gift planning at the University of Denver, described how his school spent two years collecting a $2 million donation from a donor's investment account. The financial institution required the university to open a new account and provide personal information about its then-chief financial officer. The school initially refused but eventually relented. "If that $2 million earned 4.5% annually, that's $90,000 per year for student scholarships," Krause said. "Instead, that money sat idle in the institution's managed asset pool."

Several nonprofit leaders interviewed for this story asked that the names of the financial institutions they work with remain confidential, citing concerns about donor privacy and potential retaliation. Some nonprofits are now pushing for state-level legislation requiring financial institutions to release estate funds in a timely manner without mandating that charities open new accounts. Over the past two years, six states have passed such measures. In California, a donor intent protection bill has been sent to Governor Gavin Newsom for signature, which would make it the seventh state to enact such legislation. Krause helped push through a reform bill in Colorado that took effect in April, and he emphasized that such laws will be critical as massive wealth transfers and retirement account donations surge in the coming years. According to estimates from Cerulli Associates, $18 trillion in assets are projected to be donated to charitable and philanthropic causes by 2048.

"There are trillions of dollars sitting in IRAs and stock accounts," Krause said. "Establishing a standardized process, starting at the state level and eventually aiming for national uniformity, will greatly impact whether nonprofits can quickly access funds and use them according to the donor's wishes."

Not all banks and brokerages create such obstacles. Charitable leaders and attorneys interviewed said that firms like Edward Jones and Merrill Lynch have relatively smoother processes. However, policies and procedures vary widely across institutions, with standards differing considerably. While IRAs are the most commonly cited example of this issue, the same problems arise with any asset that designates beneficiaries directly and bypasses probate court, including 401(k)s, life insurance policies, and brokerage accounts.

Johnny Hayes, an attorney specializing in estate and charitable gift planning, has spent a decade helping charities resist unreasonable custodian policies. Working on a volunteer basis, she provides legal advice and template letters to nonprofits such as the University of Denver and the Iowa Public Television Foundation. Hayes has seen financial institutions request driver's license photos of employees, personal asset information, and even authorization for credit checks. "To be frank, charities have always been willing to provide tax ID numbers, corporate bylaws, and 501(c)(3) tax-exempt status documentation," she said. "But the extra information now being demanded crosses the line."

Melanie Sadek, CEO of the Valley Humane Society, an animal protection nonprofit, said such bequests are especially valuable, typically far exceeding what donors gave during their lifetimes. Sadek campaigned for legislative reform in California after spending two and a half years trying to collect a $70,000 IRA donation. In 2021, the humane society was named one of nine beneficiaries of a donor's IRA, and the nonprofit only learned of this through the donor's sister. Sadek said that despite submitting her own Social Security number and personal information, along with that of two board members, her claims were rejected for two consecutive years. She eventually discovered that the bank required all nine beneficiaries to complete their paperwork within the same 90-day window. It took her five months to obtain the other beneficiaries' information from the donor's sister and coordinate everyone to submit materials on the same day.

Such policies often leave charity employees in a bind: either provide personal information or watch their organization lose urgently needed funds. Brad Conrad, vice president of the LCMS Foundation, a Lutheran support organization, has submitted his personal information at least 50 times since joining in 2019. Conrad worries about identity theft if any institution storing his data suffers a breach. He found it particularly anxiety-inducing last year when he and his wife were buying a home and had to authorize a credit check. "I never expected this when I took the job, and I don't do it willingly," he said. "My wife and three children haven't consented to taking on this risk either. I accept it because I believe in the mission, but it weighs on me constantly."

Experts interviewed say these problems have intensified over the past five to ten years. The exact cause remains unclear, but several possibilities exist: stricter risk control reviews at financial institutions; charities actively promoting this tax-efficient giving method; or an aging population leading to more donor deaths. Despite the hassle, experts say they still support this type of giving because it is simple and efficient for donors. Hayes, who has long advocated for streamlining the IRA donation claims process, said that Fidelity and Charles Schwab, two of the largest brokerages, frequently enforce beneficiary account rules that can cause delays or outright denials. Fidelity disclosed that it had 20.3 million active IRA accounts as of the end of June, while Schwab did not disclose its numbers. Fidelity declined to comment for this article.

A Schwab spokesperson said the company's policies are designed to implement client wishes while fulfilling legal, tax reporting, and anti-fraud obligations. The spokesperson added that Schwab "continuously evaluates optimization measures to simplify the estate claims process for all beneficiaries while remaining compliant." In a written statement, the spokesperson said: "Schwab is committed to executing clients' beneficiary designation instructions and distributing inherited assets. Upon confirmation of a client's death, Schwab makes reasonable efforts to identify and contact designated beneficiaries and guide them through the estate claims process."

Five attorneys interviewed noted that while policies vary across institutions, firms often cite anti-money laundering and customer identification regulations as justification for their practices, aimed at preventing financial crime. However, these lawyers pointed out that the law does not require custodians to force charities to open new accounts in order to receive funds. In 2020, multiple government agencies, including the Financial Crimes Enforcement Network (FinCEN), jointly issued guidance stating that the U.S. government does not view the entire charitable sector as posing a uniform, unacceptably high risk of money laundering, terrorist financing, or sanctions violations. A 2024 FinCEN ruling explicitly stated that the Bank Secrecy Act does not require brokers to make charities open new accounts before receiving inherited IRA funds. If a broker decides on its own to require an account, it must collect identity information on the charity's principals under customer due diligence rules. "Opening an account is not legally required. The evidence is that other large financial institutions don't impose such cumbersome hurdles," said David Cahoon, who served as head of philanthropic strategy and bequest planning at Brown University until 2024. FinCEN and the U.S. Treasury Department declined to comment for this article.

Iowa State Representative Bill Gustoff, himself an attorney, believes some institutions have legitimate concerns about legal liability. For example, a bank may need to reclaim disbursed funds to settle a donor's estate debts. However, he also pointed out that profit motives exist behind these practices, such as charging asset management fees. Gustoff learned about the issue from Hayes, who shares a law firm affiliation (Thompson & Associates), and subsequently drafted and championed Iowa's reform bill. "Unfortunately, some institutions have less noble motives, withholding funds for various reasons or repeatedly opening and closing accounts. A large part of that is profit-driven. The donor has passed away, so who's going to complain?"

Attorney J. Scott Kilpatrick said that regardless of motivation, custodians that market IRAs as estate planning tools to high-net-worth clients should establish clear, efficient asset distribution mechanisms. "A custodian that operates globally and manages hundreds of billions in assets ought to have a mature system in place to deliver on its promises when a client dies. But many don't."

Iowa passed the nation's first such reform law in 2024. Experts say charitable advocates in Missouri and Florida are pushing for similar legislation. The six state laws enacted so far differ in details but generally require financial institutions to transfer assets in a timely manner. Colorado's law requires custodians to complete asset transfers within 60 days of receiving a sworn claim from a charity. Hayes noted that except for Iowa's law, all other state laws explicitly prohibit requiring charities to open new accounts. Iowa's bill advanced without opposition, but other states faced resistance from financial industry lobbying groups, particularly over the provision requiring institutions to notify charities of their beneficiary status. Illinois and Tennessee have successfully included this provision in their laws. North Carolina introduced a related bill in March 2025, which has been stalled in the state Senate since July.

California State Senator John Laird, who drafted that state's bill, expressed optimism about reform prospects. He noted that California's legislation applies to all types of beneficiaries, not just charities. "People who haven't encountered this issue see it as a niche problem," Laird said. "But once you experience it firsthand, it stops being minor. If someone leaves you a property bequest and you don't even know about it for three years, that's a problem that demands a solution."

While state reforms advance gradually, experts advise IRA donors to take proactive steps during their lifetime to help avoid some of these obstacles. Anne Calder, vice president of philanthropic services at the Four Cities Community Foundation, suggests donors provide copies of beneficiary designation documents and account numbers to their intended charities in advance. Hayes recommends that donors switch to financial institutions with smoother processes, or simply inform their chosen charities about the bequest arrangement in advance. Of course, some donors have reservations. "Donors worry that if a charity expects a large gift but they later use the money themselves, the charity ends up with nothing," Hayes said. "But charities fully understand that the money belongs to the donor."