How to Include Charitable Giving in Your Estate Plan

Many estate planning clients want to know how they can include charitable giving in their estate plans. Since you are reading this article, you probably have that same question.

Giving to a charity can be a rewarding experience, and including charitable giving in your estate plan is a great way to support worthwhile causes and create a legacy that continues long after the end of your life.

In addition, including charitable giving in your estate plan will allow you to take advantage of the annual gift tax exemption (currently $15,000 per year to an unlimited number of beneficiaries) and lessen your estate’s exposure to gift, estate, and capital gains taxes.

Estate Planning Options for Charitable Giving

Charitable giving can be facilitated through direct gifts, wills, revocable trusts, and beneficiary designations, as well as, through more sophisticated estate planning options, like charitable lead trusts, charitable remainder trusts, and private foundations.

Direct Gifts, Wills, Revocable Trusts, and Beneficiary Designations

Direct gifts, wills, revocable trusts, and beneficiary designations are perhaps the simplest ways to facilitate charitable giving because there are very few formalities required. However, despite the simplicity, there are a couple of good reasons why you should not rely on these options for charitable giving.

First of all, the way charitable gifts are treated for tax purposes is often significantly different than gifts made to non-charitable beneficiaries. This can be a problem when giving valuable assets through one of the options above.

Also, if you simply gift assets to a charity directly or using your Will, revocable trust, or a beneficiary designation, instead of via one of the more sophisticated estate planning options, you may miss out on significant tax avoidance opportunities.

Charitable Lead Trusts

A charitable lead trust is a trust structure that allows you to make distributions to a charity for a specified period of years or your entire lifetime. Then, at the end of this period, whatever is left in the trust is distributed to your family members or other beneficiaries.

The most important things about a charitable lead trust is that it includes both a charitable component and a family or beneficiary component. Furthermore, a charitable lead trust provides income tax deductions and estate or gift tax savings on assets distributed to the trust’s remainder beneficiaries.

Charitable Remainder Trusts

A charitable remainder trust is the structural opposite of a charitable lead trust. With a charitable remainder trust, you or someone you name receives a distribution from the trust each year for a specified number of years or your entire lifetime. At the end of that period, whatever is left in the trust gets distributed to charities of your choosing.

Private Foundations

A private foundation is a tax-exempt, 501 (c) (3) organization. You may want to create a private foundation if you would like to consolidate your charitable giving and make distributions to a number of charities that you select over time. A private foundation’s principal activity is making grants to public charities and, in some cases, awarding scholarships to deserving individuals. A private foundation is a great vehicle for families to involve multiple generations in charitable giving and to pass down family values.

If you would like to discuss other ways to include charitable giving in your estate plan, or if you have any questions regarding estate planning in general, feel free to get in touch with us to arrange a consultation with an experienced and knowledgeable estate planning attorney. Call (703) 553-2577 or use the contact form on our website.

The information on this site is for general informational purposes only. The information presented in this site is not legal advice or a legal opinion. You should seek the advice of legal counsel of your choice before acting upon any of the information in this site.