When people want to leave a legacy, honor a loved one, or support a cause, they often make donations to charities that share their values. Charitable giving can also be incorporated into estate plans in order to fulfill a person’s philanthropic objectives. Johnson Law Group’s experienced estate planning lawyers can answer any questions you have about charitable giving and your estate plan when you call (720) 463-4333.
Charitable giving can provide many benefits to donors, including:
Incorporating charitable giving into your estate plan generally requires you to complete these three steps:
First, select a charity you want to support. You might want to review your previous donations or consider new causes. If you are not certain which organization to donate to, you can use a site like Charity Navigator that evaluates the effectiveness of various non-profit organizations.
To receive tax benefits for donations, the organization must be one that the Internal Revenue Service (IRS) considers a “qualified organization,” which includes:
Next, consider which assets you want to donate. There are various assets that can be donated, such as:
Finally, consider how you want to make the gift, such as during your lifetime or after your death. Various charitable giving strategies are outlined below for some ideas on how you can make charitable gifts.
There are many options for how you can incorporate charitable giving into your estate plan. An experienced estate planning lawyer with Johnson Law Group can walk through your options to include charitable giving in your estate plan, such as:
The simplest way to provide for charitable giving through an estate plan is to make a bequest in one’s will or trust. For example, a person may gift a particular item of value or a percentage of their estate to a certain charity. When making this gift, they can also specify how they want the charity to use the donation.
If a donor has specific requests for how funds should be used or wants to generate an income stream from the trust, there are specific trusts that can be created for these purposes, such as:
With a charitable lead trust, a donor creates a trust and transfers assets into them. The donor establishes how much to contribute each year and is committed to making these contributions. The donor gets a tax savings for the donation each year they provide to the charity. After the donor passes away, the remaining assets in the trust are transferred to their beneficiaries.
A charitable remainder trust works the opposite way than a charitable lead trust. With a charitable remainder trust, the donor’s beneficiaries receive the income stream during the donor’s life and the charity receives the remainder of the trust when the donor passes away. The charities must be qualified organizations, per IRS rules.
One particularly tax-advantageous way of giving to charity is to donate appreciated assets. If the owner sells an asset that has appreciated in value, they may have to pay capital gains tax. However, when they donate this type of gift to charity, they can receive an income tax deduction for the asset’s full fair market value as determined at the time they make the gift.
Another option to donate to charity in a tax-advantageous manner is to donate required minimum distributions. Under current tax laws, the IRS requires people take required minimum distributions from most types of retirement accounts once they reach the age of 72. By gifting these amounts instead of keeping them, a person can lower their taxable income
You can donate more than just an income stream to charities, if you want. For example, you can name a charity as the beneficiary of your retirement account, life insurance policy, or other account. This strategy can provide a tax deduction equal to the account’s value.
A donor-advised fund is a dedicated fund that is created solely for the purpose of supporting a charity. Assets are transferred to a newly created or existing fund. The transfer is irrevocable. Then, the assets are donated to qualified charities the donor designates. The donor determines when they want the donated funds to go to charity. The account grows tax-free. The donor receives the tax deduction at the time they place money in the funds, even if the funds have not been disbursed to a charity.
If you have philanthropic objectives you want to achieve, be sure to communicate these to your estate planning lawyer at Johnson Law Group when you set up your estate plan. Charitable giving and estate planning can go together when you create an effective plan that provides for your beneficiaries and your legacy. An estate planning lawyer at our firm can review your estate plan and provide legal advice that is targeted to your situation. Consider calling us at (720) 463-4333 or texting us at (720) 730-4558 to schedule a confidential consultation today.