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Leaving a legacy is important to a lot of people. For many, one way of doing that is by supporting religious, ideological, and philanthropic organizations that align with their values. Building charitable donations into your estate plan can be a great way to see your assets used for charitable purposes after your death, and it can lower your estate tax obligation at the same time. Find out how to use lifetime giving and testamentary gifts as part of a complete estate plan.
The easiest way to build charitable donations into your estate plan is to include charitable organizations as beneficiaries in your Will. A Last Will and Testament is designed to tell the Florida Probate Court what you want done with your assets after your death. You get to control who receives the assets, how much, and from which accounts (or which items). Most often, the beneficiaries of a person’s Will are their next of kin, but they don’t have to be. You can name a charity as a beneficiary directing that the organization receives:
Including charitable donations in your Will can reduce the overall taxable value of your estate. This will allow your heirs and beneficiaries to receive a larger portion of your assets and avoid sending money to the IRS.
You can also include a charitable organization as a beneficiary in your Living Revocable Trust or testamentary trust. In that case, your successor trustee will be responsible for distributing the property or funds to the charity, rather than your personal representative. Using a trust can also allow you to spread the charitable donations out over time or designate specific programs you want the money put toward. This gives you greater control over how your assets are spent, even after your death.
A “Charitable Remainder Trust” (CRT) allows you to place assets into a trust and receive a certain retained income for life or up to 20 years. At the end of that period, the remaining balance passes to the charity of your choice. A CRT can result in income tax deductions for contributions made during your lifetime, and estate tax deductions for rollover funding as part of your greater estate plan.
Inversely, a “Charitable Lead Trust” (CLT) allows the designated charity to receive interest earned on your assets over time. At the end of a specified period, the remainder passes to your family (or yourself in rare cases).
Another option to build charitable donations into your estate plan is to name a charitable organization as your beneficiary on your life insurance policies and retirement accounts. Leaving charities as the beneficiary for a retirement account like a traditional IRA or 401k is particularly beneficial since the charity will not have to pay income tax when they withdraw the funds, while human beneficiaries would have to do so. This will allow your financial managers and insurance providers to pay the charities directly after your death, without oversight from the Florida probate court.
There are also other ways you can put your assets toward important causes after your death. Depending on the size of your charitable gift, you may want to put your assets toward a community foundation, charitable fund, or Donor Advised Fund (DAF). Many banks and communities have their own DAFs and community foundations to assist with the collection, management, and distribution of charitable gifts by their members. This can allow the organizations to structure your gifts, along with others, for the biggest impact.
The disadvantage to making charitable donations in your Will or trust is that you don’t get to see the benefit happen yourself, since the distribution happens after your death. Before you engage in lifetime donations as part of your estate plan, it is important to discuss your financial needs and goals with both a financial advisor, tax preparer, and your estate planning attorney, to make sure you retain as many assets as you may need for your living and final expenses, and avoid exceeding any caps on charitable gifts related to your annual income. However, there are a variety of ways you can make lifetime donations part of your estate plan.
Federal tax law allows you to donate up to $105,000 per year to charitable organizations out of their IRA accounts. If you have an account in pay-out status with required minimum distributions (RMDs) and do not need those assets for your own support, you can instead direct that the payments be made directly to charity as a qualified charitable distribution (QCD). This excludes the amount from your income taxes, which may allow you to be taxed at a more favorable rate.
If you choose to leave a piece of real property (such as a home, vacation property, or farm) to a charitable organization, you can make the transfer while you are alive, and reserve a “life estate” for your own benefit. This allows you to use the property while you are alive, and allow it to pass to the charity upon your death.
Another lifetime charitable gift option is to transfer stock to a charity during your lifetime. If you have held that stock for one year and it has increased in value over time, you can avoid paying capital gains taxes on the stock by transferring it to a charity instead.
At Harrison Estate Law, we can help you build a complete estate plan that includes charitable gifts and donations toward building a legacy. We are happy to help you develop a strategy for lifetime donations and testamentary gifts that make the most of your assets and protects you and your family from unnecessary taxes. Please contact us online or via email or call 352-559-9828 to schedule a free consultation. We have extended evening and weekend appointments available by request. If you don’t live close to Gainesville, we are happy to set up a phone or Zoom call.
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