Charitable Giving and Estate Planning

Oct 13, 2023 12:11:42 PM

When making an estate plan, it’s important to consider who will inherit your money, retirement accounts, property and so on. Usually these assets go to family—but what if you want to leave a legacy by donating to charity? Here are six ways to work charitable giving into your estate plan.

Make a Will

If donating a portion of your assets to charity is a priority, it’s critical to make a will as soon as possible. An attorney can help you create this important document, or you can take advantage of an online estate planning service. Once you’re in the will creation process, you can simply name a specific charity—like a foundation, a church, or any other kind of organization—as one of your estate beneficiaries, and specify what funds you’d like that charity to receive. This is a popular way to ensure that the causes you cared about during life continue to receive support well into the future.

Set Up a Charitable Trust

An attorney or digital estate planning tool can also assist you set up a charitable trust, if you prefer to donate your assets in a more structured way instead of simply orchestrating a one-time gift. There are a number of different types of trust. A charitable remainder trust generates income which you can use for current living expenses, then later on, any remaining assets are donated to charity. A charitable lead trust supports a charitable organization for a certain length, after which assets still in the trust are given to heirs. There are various tax advantages to each option, and the best choice will always depend on your current financial situation and estate planning wishes.

Consider Contingent Beneficiaries

Another option when it comes to charitable donations is to name a charity as your contingent beneficiary. This means that if any primary beneficiary—such as a spouse or other family member—is unable to claim their inheritance, that money would go to the charity instead. Again, you can work with your attorney or digital estate planning tool to set up any other specifics around how, when and in what circumstances you prefer your assets to be distributed amongst various beneficiaries. Contingent beneficiaries can also be named in life insurance policies.

Give the Gift of Stock

Normally, you can’t cash in on appreciated stock holdings without paying a capital gains tax. However, when you donate appreciated stock to a charity, you don’t need to pay this tax on your holdings; assuming you’ve owned the stock for at least a year. The charity can then sell the stock and use those profits as needed. This is simpler than selling the stock and making a cash donation, and reduces your tax burden at the same time.

Use a Life Insurance Rider

Besides a will, life insurance is another estate planning method which can be used for charitable giving. Usually, the proceeds from life insurance are used by remaining family members to help cover the costs of burial and other end-of-life expenses. But it’s also possible to add a charitable rider to your life insurance policy that specifies if you want a portion of your policy payout to be donated. Some good news in terms of taxes is that charitable gifting via a life insurance policy reduces the donor’s estate and therefore may reduce the tax burden on remaining relatives.

Make Charitable IRA Distributions

If you’re ready to start donating to charity now, consider making a qualified charitable distribution from your Individual Retirement Account (IRA). This is a particularly good move for people who are older than 72 and therefore required to take minimum distributions from their retirement account and pay taxes on that money. Donations to a qualified charity are excluded from taxable income, so your gift will not only help others—it will potentially lower your tax bill. Head online for more specifics about required minimum distributed and qualified charities, according to the IRS.

Tags: Estate Planning