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  • Kimberly Soyer

How to Incorporate Charitable Giving into Your Estate Plan


People donate to charities for a variety of reasons. Often the gift to a charity is to honor a loved one, to provide to those less fortunate, or to support a charity that a person feels strongly about. Charitable giving can also play an important role in your estate plan. Charitable giving can have significant tax implications that can lower income taxes during your life and estate taxes at your death. In this article we will review several charitable giving options that can be utilized during your life and upon your death.


The first step in planning for charitable giving is determining what charity you want to support. It is always a good idea to research the charity or charities that you are interested in to confirm they meet your intent and goals with your charitable gift.


The next step is determining what to gift and how it should be gifted.


1. Distribution in Will or Trust. One of the more common ways to incorporate charitable giving into your estate plan is to leave a specific bequest through your will or trust. A bequest is simply a statement in your will or trust identifying the charity and setting forth a specific amount or percentage of assets to be distributed to such charity on your death. In the bequest you can also state the purpose for which you would like the charity to use the funds.


2. Gift of Appreciated Assets During Your Life. Lifetime gifts to charities can result in income tax deductions. Prior to making any large charitable gifts we recommend you seek tax advice to ensure you understand the implications and restrictions on such gifting. If you have an asset that has appreciated in value, it is possible to gift the appreciated asset to a charity. If you were to sell the asset, you would need to pay capital gains tax on the appreciation. Whereas gifting to charity would allow you to receive a charitable income tax deduction equal to the full fair market value of the asset at the time of the gift. The charity is then able to sell the asset without paying any capital gains taxes because charities are tax exempt.


3. Naming a Charity as Beneficiary on Your Retirement Accounts. Retirement accounts are often some of the highest taxed assets in an estate. For some people the majority of their wealth may be in an IRA or 401k. Naming a charity as the beneficiary on your tax deferred retirement account allows for a federal estate tax charitable deduction on the value of the account. The full retirement account is distributed to the charity and again the charity does not have to pay income taxes on the gift. You can also utilize your IRA for gifts to charities during your life. People that are over 70 ½ may donate up to $100,000 per year to charities directly from their IRA without having to pay income taxes on the money. This is commonly known as the IRA charitable rollover or a qualified charitable distribution. Beginning in the year you turn 72, you can use your gift to satisfy all or part of your required minimum distribution. A qualified charitable distribution can benefit a charity, fulfill your required minimum distribution requirement, and exclude that amount from your income to reduce your taxes.


4. Trusts. As discussed above you can simply name a charity in your revocable trust as a beneficiary to receive assets upon your death, but there are specific charitable trusts that can provide benefits to charity as well as to your family and yourself. One type of charitable trust is the charitable lead trust. The chartable lead trust is an irrevocable trust that provides financial support to one or more charities for a specified period of time, with the remaining assets eventually distributing to yourself, family members or other beneficiaries. Depending on how the trust is structured, the Grantor enjoys a current income, gift or estate tax deduction on donated assets. The other common charitable trust is the charitable remainder trust. The charitable remainder trust is an irrevocable trust that generates an income stream for you, or other beneficiaries for a specified period of time and then donates the remainder of the trust at the end of the term to the designated charity.


5. Family Foundations and Donor Advised Funds. For larger donations or donations to be made over time, the creation of a family foundation is another option to incorporate charitable giving. A family foundation can be useful for those who wish to devote some or part of their assets to charitable causes during their lives and have the work of the foundation and its charitable efforts continue after death. A donor advised fund is another option to consider charitable gifting in your estate plan. A donor advised fund is a charitable savings account that lets you make a donation without choosing a specific charity right away. You can send the money later to a qualified charity, while the account grows tax-free. You can contribute to the fund as frequently as you like, and then recommend grants to your favorite charities whenever it makes sense to you.


There are various ways to incorporate charitable giving into your estate plan during your life and upon your death. Depending on which approach you utilize, you will also have the added benefit of potentially reducing your tax liability. It is always best to research and discuss the various charitable gifting options with your financial advisor, accountant, and attorney to determine what works best for you and your family.


This article is not intended to replace legal advice applicable to your situation and should be used only for informational purposes. Consult with your legal or tax advisors before implementing any suggestion contained herein.


Ms. Soyer is an associate attorney with the firm of Sandra L. Clapp & Associates, P.A. and can be reached at ksoyer@clapp-legal.com or (208) 938-2660


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