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6 Ways to Include Charitable Giving in Your Estate Planning

6 Ways to Include Charitable Giving in Your Estate Planning

January 18, 2023
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It is never too early to start thinking about estate planning and what will happen to your wealth after you are gone. Many people find that they want to leave a lasting legacy by supporting a charity they truly care about. Plus, contributing money or assets to a specific charity may be accompanied by tax benefits in the here and now. 

Fortunately, there are numerous ways you can include a beloved charity in your estate planning. Here are the six most common ways you can contribute to a charity even after your passing with charitable giving and estate planning. 

Charitable Remainder Trust

The first way you can contribute to a charity while taking advantage of tax breaks right away is by establishing a charitable remainder trust (CRT). This comes with an added benefit for your beneficiaries as well as the charity of your choice. They can receive payments from the CRT for a set term or until their death. The remainder (which must be at least 10 percent) is distributed to the charity or charities of your choosing. 

This is an extremely popular option because it is tax-exempt when you form it. Income taxes are only paid when the beneficiary receives a payment from the charitable remainder trust.

If you have assets you plan on bequeathing to a charity at death, you may want to consider going ahead and getting your tax deduction now. When you’re dead, you don't really get to enjoy it.

Charitable Gift Annuity

Similarly, you might choose to establish a charitable gift annuity to pay out to you and/or your spouse from a charity of your choosing. You will make a large upfront donation to a non-profit, which is subsequently invested. For the rest of your lifetime, you will receive an annuity either quarterly or annually based on the payout of the investment. When you pass away, the remaining funds in the account are gifted to the charity.

A benefit of a charitable gift annuity is that you have a major tax deduction upon giving your gift to charity. Under certain circumstances, the payments you receive could also be tax-free, but you will need to consult with an accountant if this is important in your estate planning. 

Donor-Advised Funds

Donor-advised funds allow you to make an upfront tax-deductible donation at multiple points in your life. Unlike some accounts that only permit a one-time donation, you can contribute to donor-advised funds over and over again. You can donate cash, stocks, and other types of valuable assets into an investment account. From there, the donation will grow tax-free in the investment account. At the end, you can recommend grants to the non-profits that capture your attention. 

Keep in mind that once you make a commitment to a DAF, you cannot take that money back. It is earmarked for charitable giving in your estate planning and cannot be used for any other purpose. 

Charitable Rollover

If you are over the age of 72 you might have another option known as a charitable rollover which can make an impact while you are still alive. Some people may find that they do not need the full value of their IRA to cover their living expenses. As a result, you can bequeath up to $100,000 annually to charity right from your retirement savings account. 

This counts as part of the required minimum distribution (RMD), and the donation amount is excluded from your income. In other words, you will not have to pay taxes on the income that is used to donate to charity. This is a great way to make sure you hit the RMD without having to pay taxes on money that you do not truly need to survive. 

Name a Charity in Your Will

One of the easiest ways to manage your charitable giving and estate planning is to simply name a charity in your will. This will help your loved ones avoid some of the hefty estate taxes that can accompany a large gift upon your death. It is also one of the simplest ways to give money to a charity directly. Whatever dollar amount you specify can go directly toward the charity of your choosing. 

The bonus of leaving funds for a charity in your will is that you can identify the specific amount you want the charity to receive as well as how you would like to see those funds used. If you want to see a remodel on the local library or want to help pay off the mortgage on your church’s building, you can state this here. 

In some situations, you may be able to set up a trust fund for charities, but this can be addressed with your attorney. 

Name a Charity as a Beneficiary

Another option to take advantage of charitable giving in your estate planning is to list the charity of your choosing as a beneficiary on your life insurance or retirement savings accounts. These types of accounts are typically used to cover final expenses and to leave a legacy for your children or grandchildren. However, if they do not require your financial assistance, you may be able to list a charity as the beneficiary instead. 

The benefit to the charity is that they do not have to pay taxes on the withdrawal of funds from your retirement account or life insurance.

Start Your Charitable Estate Plan Today

If you want your resources to make an impact on the charities that are near and dear to your heart, there are many ways to include them in your estate planning. Magellan can walk you through all of these options and more and help you decide what is right for you, your family, and the charity you want to support. Reach out to us today to learn more about how you can make the most impact with your resources.