During the holidays people start thinking about charitable gifting. Simultaneously, the end of the year is often when people look for last minute tax avoidance opportunities. If you are interested in incorporating charitable gifts into your estate plan, working with an experienced estate planning attorney is essential. In the meantime, however, the attorneys at Wilcox Attorneys, PA discuss some of the ways in which you can incorporate charitable gifts into your estate plan before the end of the year.
Charitable Gifting Is a Way of Life
Are you someone who cannot say no when asked to contribute to a worthy cause or to an individual in need? If so, you are (fortunately) not alone. Some people are compelled to give to charity without regard to how much they have to give. The true nature of giving involves giving without getting anything in return. That does not mean, however, that you should ignore tax benefits or potentially adverse consequences for yourself when you plan your charitable gifting. As such, it is important to plan how and when you make your charitable gifts.
Charitable Gifting within Your Estate Plan
Numerous factors will impact how and when you should make charitable gifts, both during your lifetime and after you are gone. To maximize the positive impact of your charitable gifts both for the recipient and for your own estate, it is best to work with an experienced estate planning attorney. Some common options for charitable gifting, however, include:
- Charitable Remainder Trust and Charitable Lead Trust (CRT and CLT). CRT and CLT trusts allow you to combine a charitable and a non-charitable beneficiary. The trust makes regular distributions to the charitable beneficiary (CLT) or non-charitable beneficiary (CRT) first with the remainder paying out to the other beneficiary after a designated amount of time. If you choose a CRT, the charity will receive the funds upon your death without owing income tax on the gift and with the benefit of the appreciated value of the gift.
- Qualified Charitable Distribution. If you have an IRA, 401(k), or another retirement account, you will be required to start withdrawing from and potentially paying taxes on the account, even if you do not need the money at that time. These Required Minimum Distributions (RMD) can bump you up to a higher income tax bracket. If philanthropy is a goal of yours anyway, one option is to give up to $100,000 of your RMD directly to a charity.
- Donor Advised Fund. You can create a charitable fund within an established community foundation that provides you with a tax deduction and allows you to retain control over who gets your donation.
- Private Family Foundation. For anyone who has sufficient assets to give to charity, a private family foundation is an excellent option. This lets you leave a lasting legacy that can include future generations, encouraging them to incorporate philanthropy into their lives as well. The foundation will be run by a board of directors using the guidelines you establish for gifting.
- Gifting in your Last Will and Testament. Of course, you can always leave gifts to charitable organizations through a bequest in your Will; however, you often miss out on beneficial tax deductions and may lose the ability to control how the gift is used when you gift in your Will.
- Beneficiary designations. You can also name a charity as the beneficiary of a life insurance policy, retirement account, or bank account. In some cases, the gift will need to go through probate before being fulfilled while other beneficiary designations allow the assets to be transferred directly to the charity upon your death.
Do You Need Assistance with Charitable Gifts in Your Estate Plan?
For additional information, please sign up for one of our FREE estate planning webinars. If you need assistance with incorporating charitable gifts into your estate plan, contact the experienced Washington County, Fayetteville, Springdale, Rogers, Bentonville, and Northwest Arkansas estate planning attorneys at Wilcox Attorneys, PA by calling 479-443-0062 to schedule your appointment today.
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