Estate planning often includes building a legacy through charitable giving, often referred to as “Planned Giving.” Charitable giving works best when it is aligned with an estate plan, protecting assets as they are distributed across generations, supporting organizations with meaning, and minimizing tax liabilities.
Most people who give to charity don’t do so purely for tax reasons, but there’s no reason not to reap tax benefits while making generous gifts. The first consideration is whether you want to make a gift while living or after death.
A provision can be included in the Last Will and Testament to leave a certain amount of money for a charitable organization. Specific information about the amount you wish to leave and contact information about the charity should be included. A conversation with the fundraising office of the charity would be helpful while you are having your estate plan created.
Charitable giving during your lifetime can take many different forms, from an annual donation to a carefully structured trust.
A Charitable Lead Trust is an irrevocable trust providing financial support for one or more charities for a set period of time. At the end of the time period, the remaining assets are distributed to the beneficiaries.
Planned giving can also be accomplished with a Charitable Remainder Annuity Trust, or CRAT, which generates a steady stream of income to a beneficiary throughout the beneficiary’s lifetime. When the beneficiary dies, the remaining assets are transferred to the named charity.
There are a number of other types of trusts used for charitable giving, which Jay Bianco can review with you.
Taxpayers 70 ½ and older may use their Required Minimum Distributions (RMDs) to make contributions from IRAs, 401(k)s, and 403(b)s directly to an eligible charity. Known as a Qualified Charitable Distribution (QCD), this counts toward the annual required minimum distribution and can be up to $100,000. The funds must go directly from the retirement account to the nonprofit organization.
Gifting long-term appreciated securities, including stocks, bonds, and mutual funds, is another way to create a charitable legacy of giving and minimize tax liability. If you were to sell the appreciated stocks, you will incur capital gains taxes on the appreciation value, but if the stock is gifted to a charity, you receive an income tax deduction of the full and fair market value of the stock at the time of the gift.
Family foundations provide a great deal of flexibility for the charitably minded philanthropist. Control can be maintained by the family, with grants made to organizations meeting the foundation’s own mission. The family foundation may need to distribute only a small percentage of its assets to charities, allowing the assets placed in the foundation to grow over decades.
Attorney Jay Bianco has worked with many families in clarifying their charitable goals, creating a short—and long—term strategy for giving, and setting up the necessary legal structures. If charitable giving is part of your family’s legacy, please call the office to discuss the best options for your family.
This has been a very general overview of a very complex subject matter. If there are causes or organizations you would like to support, while also maximizing your tax-saving strategies, please contact us to explore your options.