Supporting a Favorite Charity in Your Estate Plan

As people age and begin to realize that more of their lives may be behind them than ahead, they naturally begin to think about the kind of legacy they will leave. That legacy can take many forms: the work one has accomplished, the family one has raised, or doing something for the betterment of society, like volunteering or supporting a favorite charity. 

If there is a cause or organization you believe in, your support can continue even after your death if you remember the charity in your estate plan. You can also use charity estate planning during your life to reduce the tax consequences of certain income. 

There are numerous options, depending on your assets, family circumstances, and needs. Some are listed below, but your estate planning attorney can help you decide what makes the most sense in your situation.

Charitable Gift Annuity

You don’t have to wait until you are gone to help your chosen charity benefit from your generosity. With a charitable gift annuity, you sign an annuity agreement and make a large, lump sum donation to the charity, for which you receive a partial tax deduction. The donation can be cash, but is more commonly securities or valuable personal property. The annuity agreement establishes terms under which you receive fixed payments for the rest of your life. Upon your death, the charity keeps the remainder of the invested funds.

Qualified Charitable Distributions

Another way to support a charity during your life is to make qualified charitable contributions (QCD) from your Individual Retirement Account (IRA). Here’s how it works: if you are 70 ½ or older, you can make a substantial donation—up to $100,000 annually—directly from your traditional IRA. The funds must pass from the account custodian directly to one or more 501(c)(3) charities; the donation cannot pass even briefly into your hands. 

Why make a QCD instead of just donating from your bank account? The amount you donate will count toward your required minimum distribution (RMD) from your IRA, income that would otherwise be taxable to you at ordinary income tax rates upon distribution. Since your contributions to the IRA were made with pre-tax dollars, making a QCD allows you to support a charity you believe in while reducing your own tax burden.

Donate Appreciated Stock

If you own publicly traded stock and have held it for years, it may have appreciated a great deal. Selling the stock could result in significant capital gains tax. If, instead, you donate it to a charity, you benefit in two ways. First, you receive a tax deduction for the fair market value of the stock donated. Second, you avoid payment of capital gains tax on any appreciation upon the sale of the stock. 

Bear in mind, however, that if you did not plan to sell the stock prior to your death and left the stock to family members, your heirs or beneficiaries would receive a step-up in basis on the inherited stock, also avoiding capital gains tax.

Make the Charity a Beneficiary of Your Will

Perhaps one of the simplest ways to do charity estate planning is to name a charity as a beneficiary of your will. You can leave a gift to a charity just as you would to a family member or friend, and you can even suggest (though not control) how the gift should be used by the charity. One downside of this method of leaving money to charities is that assets left in a will must go through probate, which can delay the funds getting to the charity.

Make the Charity a Beneficiary of a Revocable Living Trust

One way to avoid probate when leaving money to charities is to make the charity a beneficiary of a revocable living trust. A living trust allows you to use, enjoy, and sell trust assets during your lifetime just as if they were still in your own name. During your lifetime, so long as you are not legally incapacitated, you can add assets to the trust, remove them, or revoke the trust altogether. Upon your death, your successor trustee distributes any remaining trust assets to the charity or charities named as beneficiaries.

Create a Charitable Remainder Trust or Charitable Lead Trust

A charitable remainder trust or charitable lead trust is a type of irrevocable trust. Because the trust is irrevocable, the assets placed in it cannot later be removed. That removes those assets from your taxable estate, which, depending on the size of the estate, could eliminate any estate tax liability. 

With a charitable remainder trust, you (or another person) receive a lifetime stream of income, with the charity receiving the remainder of the trust assets after the death of the lifetime beneficiary, similar to a charitable gift annuity. 

A charitable lead trust, on the other hand, is essentially the opposite of a charitable remainder trust. The charity or charities receive support from the trust for a set term, say, the life of one or more individuals. After the expiration of the term, the assets in the trust are distributed to non-charitable beneficiaries, such as family members of the trust’s creator. A charitable lead trust can be created during the lifetime of the donor, or by their will. 

If you have been wondering how to include a charity in your estate planning, you might decide to take advantage of one of these options. Which one is right for you? The only way to decide is through consultation with an experienced lawyer for charity estate planning. It’s likely that supporting a favorite charity is only one of your considerations; an estate planning attorney can help ensure that you see the big picture and achieve all of your estate planning goals. 

To learn more about charity estate planning, or to update your own estate plan to remember a favorite charitable organization, contact Estate Planning & Elder Law Services to schedule a consultation.