In most estate plans, the focus is on figuring how to distribute assets to loved ones. That certainly is an important aspect of the estate planning process, but it may not fully encapsulate your wishes for the future. In fact, if you want to provide for a charitable cause, then your estate plan may need to be reshaped in a way that ensures your vision of the future for your assets and the charitable organization in question is brought into reality. But how can you do that? Let’s take a closer look.
Your options for charitable giving through your estate plan
There are multiple benefits to giving to charity through your estate plan. To start, it supports a good cause that you believe in, and your gift can make a meaningful contribution to fulfilling their purpose. Charitable giving can also save you money on taxes, especially if you have a large estate. So, here are some strategies that you might want to consider using in your estate plan if you want to make charitable giving a part of your legacy:
- Give direct gifts: While you can make donations to a charitable organization at any time, one smart way to give larger gifts is by using your retirement accounts. Through a qualified charitable distribution, you can direct money from your IRA to a qualifying charity. When you do this, you avoid taxation and can gift up to $108,000, making this an effective way to make a significant contribution to your charity of choice.
- Use a charitable remainder trust: This trust names an initial non-charity beneficiary who will receive regular payments from the trust for a specified period of time or for the remainder of their life. Once that beneficiary passes away, then the assets within the trust are released to the identified charity. These assets aren’t subjected to income taxation either. This is a popular option since it can provide for a loved one while still ensuring that charitable giving remains a priority.
- Use a charitable lead trust: This trust is essentially the reverse of a charitable remainder trust. Here, initial payments are made to an identified charity for a specified period of time. Once that time expires, the assets remaining in the trust are distributed to identified individual beneficiaries, which are usually family members. There’s also a way to structure this type of trust to reduce or even eliminate taxation on the assets in play.
- Utilize a donor advised fund: If you want to give charitable gifts during your lifetime, then a donor advised fund may be a good option. Here, you make an irrevocable gift but advise as to how funds should be disbursed, including the amount and to which charitable organization. There are tax benefits here, too. Just keep in mind that you’ll be acting in an advisory capacity, and the custodian of your funds technically isn’t required to follow your direction.
Make charitable giving a priority in your estate plan
If you want to prioritize charitable giving in your estate plan, then you have to custom tailor your estate. The details matter here, too. If you make a mistake in the creation of your plan or if you’re unaware of your estate planning options, then you could wind up subjecting your estate to otherwise avoidable taxation, or you could have your estate plan challenged in court. Don’t let those outcomes play out. Instead, work closely with your estate planning attorney to draft legally sound paperwork that protects your interests and brings your vision of the future into reality. If you’d like to learn more about how to do that, then please discuss the matter in-depth with your attorney.