Giving to charity is an important part of many people’s financial and estate planning. Donating a portion of your assets to a charitable organization can help further a cause you care about while also providing tax benefits. Here are some of the main ways you can incorporate charitable giving into your estate plan.
Making Bequests in Your Will
One of the simplest ways to provide for charity in your estate plan is to include bequests to nonprofit organizations in your will. You can leave a specific dollar amount or a percentage of your overall estate to the charities of your choice. Bequests allow you to make a substantial donation to a charity after your lifetime that can make a real difference in furthering their mission.
Setting Up a Charitable Remainder Trust
Another option is to establish a charitable remainder trust. This allows you to donate assets to a trust that provides you or your beneficiaries with income for a period of time, and then distributes the remaining assets to charity after your death. The trust helps minimize estate taxes while providing an income stream and ultimately benefiting your chosen nonprofit.
Using Retirement Accounts Wisely
For those who have tax-deferred retirement accounts like 401(k)s and IRAs, these can be a tax-efficient way to provide for charitable giving. You can name a charity as a beneficiary of your retirement account to have the assets pass directly to the nonprofit after your death. This avoids income taxes that would otherwise eat away at the value of retirement funds left to non-spouse heirs.
Making the Charity Your Beneficiary
Along similar lines, you can name a charitable organization as the beneficiary on life insurance policies, investment accounts, or any other assets that allow beneficiary designations. This is often an easy way to provide a future gift to charity that costs nothing during your lifetime. Just specify what percentage of the account assets you want directed to the nonprofit upon your death.
Donating Your Home or Other Real Estate
For philanthropically-minded homeowners, donating your home or other real property can be a fulfilling way to benefit a cause. You can either donate the property during your lifetime and claim an income tax deduction, or leave the property to the charity through your will or trust. If donating real estate that has appreciated in value, this can minimize capital gains taxes that would otherwise apply.
Creating a Private Foundation
Those with significant assets may consider creating a private family foundation to manage their charitable giving. A private foundation allows you to take tax deductions on contributions now, grow funds tax-free, and make grants to your selected charities over time. This can create an ongoing philanthropic legacy for you and your family after your lifetime. However, private foundations require more upfront costs and administration.
Making Your Wishes Clear
The key to incorporating charitable giving into your estate plan is making your wishes clearly known. Provide as much detail as possible about which charities you want to benefit and what assets should be used for donations. Discuss your goals with your estate planning attorney and make sure all related documents reflect your charitable intentions.
With some planning and forethought, charitable giving can be integrated into your estate plan seamlessly. Any one of these options – or a combination – can help you support worthy causes well into the future. Seek advice from financial and legal professionals to choose the best approaches based on your personal situation.
