How does charitable giving work in an estate plan?

On Behalf of | Jan 7, 2024 | Estate Planning |

Estate planning allows individuals to leave a lasting impact through charitable contributions. This involves designating portions of an estate to be given to charities directly or through various estate planning tools like charitable trusts.

Including charitable giving in an estate plan is an opportunity to ensure that one’s legacy extends to causes they care about while potentially providing tax benefits. Understanding how individuals can effectively leave money to charities in their estate plans may help them to determine how to proceed.

Direct bequests to charities

One of the simplest ways to leave money to a charity is through a direct bequest in a will. This involves specifying a certain amount of money or a percentage of the estate to be given to a chosen charity. Direct bequests are straightforward to set up and can be modified as circumstances change.

Charitable remainder trusts

A charitable remainder trust is a more complex but flexible tool. In a CRT, assets are placed in a trust, with income generated from these assets paid to designated beneficiaries for a specified period. After this period, or upon the death of the last beneficiary, the remaining assets in the trust are transferred to the chosen charity. CRTs offer tax benefits, as they provide a deduction based on the charitable portion of the trust.

Charitable lead trusts

Charitable lead trusts operate in the reverse order of CRTs. In a CLT, the charity receives the income from the trust assets for a set period. After this time, the remaining assets are passed to the designated beneficiaries, such as family members.

Benefits of including charities in estate plans

Including charities in an estate plan can offer significant tax advantages. Donations to charities are generally deductible from an estate’s value before estate taxes are calculated. This can reduce the value of one’s taxable estate, potentially leading to substantial tax savings.

Incorporating charitable giving into an estate plan is a multifaceted decision. It’s about supporting a cause and managing financial and tax implications effectively. Charitable trusts can balance personal, familial and philanthropic goals. They may allow individuals to make a meaningful impact while still ensuring that their broader financial objectives and the needs of their beneficiaries are met.


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