By Associate Attorney Danielle Nodar
When creating an estate plan, people oftentimes consider their legacy and what they may be leaving behind for future generations. For many individuals, this legacy extends beyond their loved ones and includes considering donations to a charity they have given time or money to during their lifetime, a school or organization that has had a meaningful impact on their life, or a cause that they are passionate in supporting.
There are many methods of including a charity in one’s estate plan. One is naming a charity as a beneficiary in your will or trust. Just like any other asset that is left to an individual beneficiary, the terms of your will or trust designate how and when your assets are distributed for charitable purposes and your executor or trustee will be responsible for carrying out the distribution. When considering what to give to a charitable organization (often referred to as Section 501(c)(3) tax exempt organizations), it is important to remember that your gift can go beyond cash in a bank account, but can include assets like a stock portfolio, artwork, a car, or real estate.
When deciding how to contribute to a charity, an estate plan may also provide you with more options in determining how the donation is used. For example, if your donation is to a charity that fights a certain disease, your estate plan can specify that you want your donation to be used for research. You can also leave the donation to the charity directly and they make the overall decision as to how the funds are allocated.
In addition to the benefits to the charity, there may also be financial benefits to your estate and loved ones by including charitable giving in your estate plan. Gifts, during life or at death, to Section 501(c)(3) charities do not count towards the total taxable value of your estate. Thus, naming a charity as a beneficiary will reduce the value of your estate at the time of death, which can lower or eliminate the amount of estate taxes owed by your estate.
Depending on the size of the donation you are planning to make, you may also be able to create a donor advised fund (DAF), which allows you to make irrevocable charitable gifts to Section 501(c)(3) charities while taking advantage of tax benefits during your lifetime. With a DAF, most donors are immediately eligible for a tax deduction upon making the initial donation, donor contributions to the DAF are tax-deductible, and investment growth in the DAF is tax-free. You can also donate long-term appreciated securities without paying capital gains tax.
Another way to include charitable giving in your estate plan is through updating beneficiary designations of life insurance policies, annuities, IRAs, or other retirement plans. You can name a charity as a primary or contingent beneficiary and gift them all or a portion of the funds. While this option may be as simple as updating a beneficiary designation, whether or not is the best choice for charitable giving depends on a variety of factors, including what other assets an individual may have at the time of their death and the value of the asset being distributed through a beneficiary designation. For example, using charitable giving through retirement accounts may be a wise choice for some individuals as retirement accounts are some of the highest taxed assets in any estate. By gifting your retirement account, your estate tax burden is reduced because your estate will receive a federal estate tax charitable deduction on the value that is held in the account. Furthermore, the charity does not have to pay income taxes on this gift.
When considering your priorities in your estate planning, dedicating a portion of your assets to charitable giving is one of the ways to support causes that are important to you, even after death. Contact Jesson & Rains for assistance with considering your options for charitable giving in your estate plan.
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