Charitable Giving Through Your Estate Plan
Charitable giving can help reduce your tax burden while allowing you to leave a legacy to a cause you believe in. Importantly, incorporating charitable giving into your estate plan is not one-size-fits all. There are many different tools available to accomplish your charitable objectives while preserving assets for your loved ones. Determining the mechanisms you will use can depend upon the types of assets you wish to bequeath, your timeline for giving, and your financial goals.
Some common estate planning vehicles that can allow you to give to charity can include the following:
1. Bequests in a Last Will and Testament
Leaving a charitable bequest in your last will and testament or your revocable living trust is one of the most straightforward and simple ways to support a cause you care about. This method of giving also allows for considerable flexibility. For instance, you can specify an exact dollar amount for a charity, leave a percentage of your total estate, or leave your “residual estate.” The residual refers to what is left over after all other bequests, debts, and taxes are paid. You may also structure your gift as a contingent bequest, meaning it would only take effect in the event your primary beneficiaries do not survive you.
2. Beneficiary Designations
Using beneficiary designations is an easy and cost-effective way to make a gift to a charitable cause. It simply requires requesting a form from your financial institution, life insurance carrier, or retirement plan administrator. You may even be able to update your beneficiary designations online. You can name the charity as a primary or contingent beneficiary, as well as specify a dollar amount or percentage.
3. Donor-Advised Funds
A donor-advised fund is a type of giving account administered by a sponsoring organization. It allows you to make a charitable contribution, claim a tax deduction immediately, and recommend grants to 501(c)(3) charitable organizations whenever you are ready to do so. With this structure, you can avoid capital gains taxes on appreciated assets while simplifying the charitable giving process and avoiding many of the complexities associated with private foundations. In addition, the sponsoring charity would handle all the administrative tasks in connection with distributing your gift and keep track of receipts for tax purposes.
4. Private Foundations
A private foundation can allow high net worth individuals to achieve their philanthropic goals while maintaining strict control over their giving. Depending on the circumstances, contributions to a private foundation may also provide income, gift, and estate tax benefits. You can establish the specific mission for your foundation and leave a lasting legacy for generations to come. However, because they are their own legal entities, setting up a private foundation can be complex. They are also subject to stringent IRS reporting, management fees, and mandatory annual payout requirements. A knowledgeable estate planning attorney can help you assess whether a private foundation meets your needs.
5. Charitable Trusts
There are different types of trusts that can be used for charitable giving purposes. These vehicles can help reduce estate and gift tax exposure, avoid capital gains on appreciated assets, and provide benefits for both charitable and non-charitable beneficiaries. The two most common types of charitable trusts include charitable remainder trusts and charitable lead trusts. A charitable remainder trust can provide you or your beneficiaries with a stream of income for a specific period of time and then pass assets to a qualified charity. In contrast, a charitable lead trust distributes income to one or more charities for a set period of time with the remaining assets passing to non-charitable beneficiaries.
6. Qualified Charitable Distributions
A Qualified Charitable Distribution (QCD) allows individuals who are 70 ½ or older to directly transfer a certain amount annually from an IRA to a qualifying charity. These assets are excluded from gross income and can satisfy the yearly Required Minimum Distributions (RMDs). Ultimately, these charitable distributions can help manage retirement withdrawals while reducing taxable income. You can also use a one-time QCD up to $50,000 from an IRA to fund a charitable remainder trust or charitable gift annuity.
7. Charitable Gift Annuities
A Charitable Gift Annuity (CGA) is a contract between you and a qualified charity. Upon making a donation, the charity invests the gift and agrees to pay you a fixed amount of income during your lifetime based on your age, life expectancy, and the number of beneficiaries. Upon your passing (or your spouse’s passing if you are giving as a couple), the charity would be entitled to the remainder of the gift.
Contact an Experienced New Mexico Estate Planning Attorney
If you are considering charitable giving through your estate plan, it’s essential to have the guidance of a skilled estate planning attorney who can help you create a strategy that will accomplish your objectives. Dana M. Kyle has over 30 years of experience assisting clients in New Mexico with creating comprehensive estate plans that will achieve their financial and philanthropic goals. Contact The Law Offices of Dana M. Kyle, P.A. to schedule a consultation and learn how we can help.
