Many individuals support charities and philanthropic groups throughout their lives by donating regularly to organizations and causes that touch their lives or do work important to the donor. Charitable giving also is an important part of estate planning for a lot of people.
Lifetime charitable and philanthropic gifting is usually a simple matter of donating money (or property) to an organization outright or through a charitable trust. Integrating charitable giving in an estate plan is more complicated, because there are a number of different options available to accomplish charitable gifts. The best option will depend on the donor’s individual and family circumstances and financial situation.
The first step in determining the role of charitable giving in your estate plan is to identify the recipients of the charitable gifts in your estate. They may be groups that you donate to regularly, or they may be new causes important to you and your family.
Your charitable and philanthropic goals may address concerns that are critical in your own community. They also may embrace issues that affect the well-being of future generations. If you identify your passions, values, and priorities in life, you will find worthy organizations that can benefit from receiving a legacy gift in your estate.
The most important factor to bear in mind in planning charitable giving during your life or as part of your estate plan after death is that charitable gifts may have tax consequences. A well-planned gifting program may result in substantial tax savings during your lifetime and for your estate. However, to realize those benefits, you should consult with an experienced estate planning attorney) before you embark on your plan.
Tax considerations aside (because they are unique to each individual), there are a number of different ways to accomplish charitable giving as part of your estate plan:
Lifetime gift planning often is part of an estate plan. Gift planning includes not only charitable gifts, but gifts to family members as well. The primary reason to plan for gifts is that gift tax laws apply to any financial donation or gift you make during your life, whether or not it is a charitable gift. Your charitable giving goals should take into account gifts you can accomplish during your life, especially those that can save taxes.
Tax law changes enacted in late 2017 in the Tax Cuts and Jobs Act significantly affected the tax consequences of charitable giving during life and as part of an estate. In some cases, accelerating charitable bequests and making them before death (outright or in a charitable trust) may be beneficial for the donor.
Lifetime charitable gifts can be made outright or through a charitable trust. In some situations, the donor may create a charitable gift annuity to accomplish the donation. In a gift annuity, the donor receives income from the assets during life, and the charity receives the balance of the assets after the donor’s death.
The simplest form of a charitable gift in an estate is an outright bequest made in your will or testamentary trust. You name the organization(s) and specify the amount of the gift in a dollar sum or as a percentage of the estate or remainder after other distributions. You also can leave real or personal property (including securities or bank accounts) to a charitable organization.
One drawback of this type of charitable gift is that you maintain no control over how the gift is used. In addition, if you take this approach, it is advisable to include an alternate charity choice, in case your primary choice no longer exists on your death.
Charitable donations often are placed in a charitable trust created as part of the donor’s estate plan. Using a trust has the advantage of providing control over use of the assets through the terms of the trust. In addition, several specific types of charitable trusts also may be used to accomplish charitable giving in estate plans and also benefit the donor or family members:
Retirement assets in an IRA or 401(k) plan can be used to make charitable gifts in an estate plan. Specific rules apply in making beneficiary designations in this situation. If you wish to use retirement account assets for charitable giving, it is critical to talk with an experienced estate planning attorney before taking any steps to accomplish the gift.
Another option for charitable giving in an estate plan is using the proceeds of a life insurance policy. As with other options for gifting, you should consult with an attorney before deciding that this strategy is best for your charitable giving plan.
In some situations, a family foundation is a possible alternative for charitable giving. Family foundations can make the charitable gifts during the lifetime of family members and continue giving after their deaths.
When you decide that you want charitable planning to be part of your estate plan, you should talk with a knowledgeable estate planning attorney to determine what strategy fits your goals, needs, and circumstances. No single alternative is best for everyone and every situation.
At Peterson Law Offices in Queen Creek, estate planning is an important focus of our practice. Our services include helping individuals and families develop estate plans that include charitable giving.
We welcome inquiries from clients throughout the East Valley, including Queen Creek, San Tan Valley, Gilbert, Mesa, and Chandler. Schedule your free initial consultation by calling 480-878-5998 or using our online contact form.
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