Charitable Giving Through Your Estate Plan

Many of us have causes, organizations, or institutions that are near and dear to our hearts. We may make regular contributions to them during our lifetimes to support their ongoing mission in the here and now. If you are interested in having a long-term impact on the causes you believe in, you may want to consider incorporating planned giving into your estate plan.

Planned giving is when you incorporate charitable giving to organizations or institutions you want to support in the long-term through your estate plan. Giving in this way can provide a substantial gift to causes important to you that will impact future generations. Further, setting up charitable giving could have tax benefits, especially if you have a taxable estate.

There are several different ways you can incorporate charitable giving into your plan.

Bequest in Will

Perhaps the most straightforward way to make a charitable gift in your estate plan is through a bequest in your will. You can give either a specific dollar amount or a percentage of your estate to an organization or institution of your choosing. When considering giving through your will, you should make sure that your estate will have enough assets to carry out your desired gift.

Using Life Insurance

Another way to provide a charitable gift through planning is by naming an organization of your choice as a beneficiary under your life insurance policy. You can either list them as a full or partial beneficiary of your policy.

Beneficiary of Retirement Plans

One tax efficient way to leave a gift to a charitable organization or institution you want to support is by listing it as a sole or partial beneficiary of a 401(k) or IRA. Withdrawals from traditional 401(k)s and IRAs are taxable to non-charitable beneficiaries, but not to charitable organizations. So, if giving is important to you, you can use some of these assets to support a charity and maximize the use of other assets that don’t come with tax liabilities for your loved ones.

Using a Donor-Advised Fund

If you have resources now that you want to earmark for future giving, you could consider a long-term giving plan with a donor-advised fund (DAF). Such a fund is run by a public charity that is used exclusively for charitable giving. When you give money to a donor-advised fund, you get a tax deduction in the year you make the contribution, regardless of when the funds are distributed to a charity from the fund.

Not only can you fund your DAF during your lifetime, but you can also leave bequests through your will to your DAF or list it as a beneficiary for your life insurance or retirement plans. To carry out your wishes for charitable distributions upon your death you can either pre-determine distributions to charities with a set schedule or you can appoint a loved one as a successor to carry out grants after your death.

Charitable Lead Trust or Charitable Remainder Trust

For people concerned about estate taxes, irrevocable charitable lead trusts or irrevocable charitable remainder trusts can be another way to ensure your wishes to support a particular cause are carried out while receiving a tax benefit. Charitable lead trusts can be created either during your lifetime or through your will. Payments from the trust are made to a charity or charities for a certain period and then at the end of that time, the funds are distributed to non-charitable beneficiaries, often family members. Charitable remainder trusts pay income to you or another beneficiary for a certain period and distribute the remainder to a charity at the end of that time.

Planned giving can be a wonderful way for you to impact generations to come. With so many options for giving back through your estate plan, it is wise to consult with an estate planning attorney who can help you determine the best approach for your circumstances.

If you would like to figure out how to incorporate giving into your plan, reach out for a consultation!