When creating an estate plan, many people choose charitable giving not only as a way to create a social impact but also because charitable giving comes with tax considerable benefits. Some estate planning strategies can help donors reduce or avoid income taxes, estate taxes, and gift taxes while still receiving an income stream during their lifetimes. When given a choice between paying taxes and donating money to a special cause, most people would choose to donate to charity.
When deciding how to make a gift to charity, is important to consider not only a donor's goals but also the types of assets that will be donated. Many charities will accept funds directed from a bank account or money set aside in a will or a retirement account, but they will also accept other types of assets such as real estate and personal property (like home furnishings). For any assets such as art collections that may be difficult to appraise for value, many donors decide to sell the assets during their lifetime and donate the proceeds to charity.
Estate Planning Strategies for Charitable Donations
There are many ways that donors can maximize their tax savings and continue to receive income during their lifetime while also ensuring that the funds in a charitable donation are used in ways that the donor intended. Using traditional estate planning instruments such as a will are just one way that many people decide to give to charity. Creating trusts and maximizing other estate planning strategies offer additional benefits.
Gifting through a Will
Many people choose to establish a trust for charitable giving due to the flexibility that a trust can provide donors, but another option is to leave property to a charity in a will. When choosing which assets to leave to charity and which to leave to other beneficiaries, it pays to give the charity assets that would otherwise create taxable income to the recipient (such as traditional IRAs).
Charitable Gift Annuity
A charitable gift annuity is created when the donor gives a lump sum of money to a charitable organization and receives a fixed percentage of the funds in the annuity for the remainder of the donor's life. After the donor's death, the remaining funds are then donated to the charity.
Charitable Lead Trust
A charitable lead trust provides an income stream to a charitable organization for a term of years. At the end of the term, the remaining funds in the trust go to the donor's heirs. This is usually motivated by a desire to reduce the ultimate beneficiary's tax liability upon inheritance.
Creating a foundation is a way that many people establish a legacy for a cause that is important to them. Donors can choose to direct how the funds will be spent by the foundation. Private foundations provide funding for many scholarships and community activity centers across the country.
Donor Advised Fund
Individuals who regularly contribute to their church and other charitable organizations can create a donor-advised fund to manage their regular contributions and save money on their income taxes by accelerating the donations into a single year. This strategy has gained in popularity after the changes made in recent tax reform laws that severely limit the utility of smaller charitable contributions.
Contact a Charitable Planning Attorney
If you have questions about charitable planning or need assistance with estate planning in Arizona, Alaska, California, Colorado, Oregon, or Tennessee, contact Nina Whitehurst at Cumberland Legacy Law, located in Crossville, Tennessee. You can use our online form to schedule a consultation or call us at (931) 250-8585.