Charitable Giving And Your Estate Plan

March 18, 2022

Charitable Giving

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.

Benefits of Charitable Giving

Charitable giving can provide many benefits to donors, including:

  • An ability to leave a legacy and help a cause they support
  • Lower-income taxes during the donor’s lifetime and decreased estate taxes at death
  • Decreased or eliminated capital gains taxes, depending on the type of charitable donation
  • Ability to spend down the estate to further decrease estate taxes
  • Possibility of avoiding probate if used in conjunction with other estate planning strategies

How to Incorporate Charitable Giving into Your Estate Plan

Incorporating charitable giving into your estate plan generally requires you to complete these three steps:

Choose a Charitable Cause

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:

  • A state or possession of the United States used for public purposes
  • Trusts, funds, or foundations created only for charitable, religious, educational, scientific, or literary purposes or to prevent cruelty to children or animals
  • Religious organizations
  • War veterans’ organizations
  • Nonprofit volunteer fire companies
  • Civil defense organizations
  • Fraternal societies (when contributions are used only for charitable purposes)
  • Nonprofit cemeteries

Select Assets to Donate

Next, consider which assets you want to donate. There are various assets that can be donated, such as:

  • Cash
  • Real property
  • Vehicles
  • Privately-held securities
  • Artwork
  • Account proceeds

Decide How to Make the Gift

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.

Charitable Giving and Estate Planning Strategies

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:

Name a Charity in Your Will or Trust

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.

Use a Charitable Trust

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:

Charitable Lead Trust

With a charitable lead trust, a donor creates a trust and transfers assets into it. The donor establishes how much to contribute each year and is committed to making these contributions. The donor gets a tax saving 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.

Charitable Remainder Trust

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.

Donate Appreciated Assets

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.

Donate Required Minimum Distributions

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 to 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

Name a Charity Your Beneficiary

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.

Use a Donor-Advised Fund

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.

Contact a Charitable Giving and Estate Planning Lawyer To Learn More Today

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.

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Written by Family Law Attorney Myles S. Johnson
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