We often think of the Beneficiaries of our estate as loved ones. But a Beneficiary can be any person or entity you choose to leave money or assets to. This can include nonprofit organizations and charities.
Are you thinking of leaving a donation to a Charity Beneficiary as part of your final wishes? We cover everything you need to know about Charitable Bequests here in our Naming a Charity as a Beneficiary Guide.
So keep reading, as we outline and break down everything you need to know below, including:
Steps to Naming a Charity Beneficiary
Leaving money to a charity is not very hard. In fact, it’s really just a three-step process.
Identify the charity or cause you want to support
Determine what type of gift you’d like to make
Include the gift in your Estate Plan
1. Identify the Charity or Cause You Want to Support
Decide what charity or cause you want to support. This sounds simple, but it's important to be sure you've identified the organization you actually want to support. There are many charities doing wonderful things, and some of them have very similar names.
Also keep in mind that some charities have regional offices or chapters. You can choose to support the national organization as a whole, or you can opt to support the local chapter directly.
Make sure to get the organization's full legal name (which often may vary from their commonly used names), and an Employer Identification Number (EIN) or Taxpayer Identification Number (TIN). Most charities include this on their website, but you can also check aggregator sites, too.
2. Determine What Type of Gift You’d Like to Make
Determine the type of gift you plan on leaving. You can choose to give:
A defined dollar amount
Specific assets (like cars or stocks)
A percentage of your total estate
If you're giving a very large gift ($10,000 or more), or if you're giving specific assets (like a car or real estate), it’s a good idea to contact the charity first. This will help ensure the process is seamless and head off any unexpected complications (like the charity not being able to accept the real estate you would like to donate).
3. Include Your Gift in Your Estate Plan
Wills and Living Trusts commonly include charitable donations that will go into effect upon your passing. Most charitable organizations are more than happy to help with this process – their websites usually have Giving or Donations pages that offer helpful information and even give sample gift language.
Many organizations also have planned-giving experts. These experts can help discuss various giving options to help you give a gift that’s most appropriate for your situation. After all, your ultimate goal is to have a lasting impact for a cause you support and believe in.
Why You Should Inform a Charity Beneficiary of Your Wishes
While it’s not required to inform an organization of a Charitable Bequest, it’s still a good idea to do so. Charities love to hear from planned donors. More often than not, while they’re thrilled to receive a donation from a decedent, they generally regret not having met the donor beforehand so they can build a connection and express their gratitude.
Another benefit to contacting a charity is that doing so helps to ensure your gift is planned correctly. As earlier noted, it’s important to list the correct legal name and Employer Identification Number (EIN).
You may have specific uses you want your donation to support. Contacting the organization is one way to make sure your gift ends up being used in the manner you envision. It’s common to leave a gift for a specific use, like donating to a cancer foundation and directing your gift be used to support families affected by cancer. But if the charitable organization you’re leaving money to is focused only on researching cures and doesn’t engage in family support, your intended use might not be possible. In cases like that, it could lead to a charity declining your gift. You can easily avoid these types of complications by working with the charity beforehand.
Considerations for Large Bequests to Charity
If you’re planning on leaving a large gift (over $100,000), or if you plan to donate complex assets like real estate, you should definitely contact the charity first. Some charities might need time to prepare for these gifts.
Consulting the experts
Since so many charities have planned-giving professionals who are experts in Charitable Bequests, it makes sense to consult them and use their expertise. There are countless ways to give that go far beyond just leaving a donation in your Will or Living Trust.
Planned-giving experts can help you craft strategies for nearly any goal. For example, you may have stock you’d like to donate to a charity, but maybe you’re relying on the dividends from that stock to cover your current living expenses. Planned-giving advisors can help create a strategy that may allow you to donate the stock now, while taking an immediate income tax deduction and still receiving a stream of income from the stock for the rest of your life. There are some very powerful strategies that are often overlooked by donors.
Some people hesitate to contact a charity because they don’t want to draw any attention to themselves, or maybe because they are hesitant to commit to a donation now in fear of something changing in the future. But the truth is, charities understand that situations change, and they would also understand if a large donation became substantially less over time for any number of reasons.
Working with the charity can make those changes easier by ensuring your gift planning is appropriate at all stages of life.
How to Give the Most to a Charity Beneficiary
Charitable organizations can often greatly increase the impact of donations. These organizations are set up to leverage all their donors, partners and service-providers to maximize the total impact from multiple sources. For example, it might cost you $5 to provide one meal to someone in need, but a charity already operating in that sphere might be able to provide twenty meals for that same $5.
Charitable Bequests are a great way to leave a legacy. If you’ve spent your entire life trying to make an impact on the world, leaving money to charity is yet another way to continue to give, even after you pass away. Establishing a charity as a Beneficiary ensures your impact will continue.
In some cases, there might be more beneficial ways than bequests to support charitable organizations. Planned-giving professionals are extremely knowledgeable in ways to maximize your impact, both during your lifetime and after death. They can be fantastic resources that might allow you to do more than you’d have been able to with a simple Charitable Bequest.
Alternatives to Leaving Money to Charity
Charities are not the only option for making an impact. Community Foundations can often provide more personalized benefits. These public charities (as opposed to private charitable organizations) focus on making an impact in a specific geographic area. They often provide a wide range of support through grant making.
If you have high-valued assets, you have even more options to give back. Charitable Trusts are one such option for larger donations. They can be a way to support areas in need, while also providing assistance to other Beneficiaries through a stream of income and a pool of assets that can be used for charitable purposes.
Private Foundations are one more option to give back. A Private Foundation is a separate entity you can create for charitable purposes. The funds held by a Private Foundation can be used in a wide variety of ways to support a foundation’s mission under the direction of an Executive Board. Private Foundations are generally more common at extremely high asset levels. Well-known examples are the Bill and Melinda Gates Foundation and the Susan G. Komen Foundation.
Tax Considerations for Charitable Bequests
Charitable donations might generate income tax and estate tax deductions. Most people are familiar with this concept – a tax deduction for gifts made during your lifetime. A tax deduction can reduce the income taxes you owe during the year of the donation. However, recent tax laws have reduced the impact charitable donations used to offer donors in the past (fewer individuals can now take itemized deductions like charitable donations).
Estate tax deductions for charitable gifts can be important, but tend not to be relevant for most people. The federal estate tax threshold is currently over $11 million, so most people do not have any estate tax liability anyway. Thus, taking an estate tax deduction might have no tax benefit.
The relative impacts of income and estate deductions depend entirely on your specific situation. Your tax advisor can help you evaluate any potential impact of planned gifts. And remember, those planned-giving professionals who work with charities might be able to discuss various strategies to maximize any possible income tax deductions, estate tax deductions or both.
Statistics on Charitable Bequests
In 2018, Americans gave an estimated $427b to US charities – Giving USA’s
In 2018, giving by Charitable Bequests did not keep up with inflation; total amount given was estimated at $29.71b – Giving USA’s
In 2018, charitable giving rose only 0.7 percent nominally, which is a
decline of 1.7 percent when adjusted for inflation – Giving USA’s
30 percent of annual giving happens in December each year, and 10 percent occurs in the last three days of the year – Nonprofits Source
Tax policy changes in 2017 reduced charitable giving by effectively eliminating any tax deduction for most people – The Tax Policy Center’s
Common questions about Charitable Bequests
How Much Do Charitable Bequests Contribute in Total?
Charitable Bequests make up a relatively small portion of total charitable giving.
Why Are Charitable Bequests Not Very Common?
This may be the result of two factors. First, the long-standing income tax deduction favors income tax donations over bequests. Second, there is a large number of individuals who do not have a plan in place. As income tax benefits decline and it has become easier to create (and update) an Estate Plan, this may start to shift. More people may begin making bequests in their Estate Plans.
How Will My Other Beneficiaries Feel About My Charitable Bequest?
Most family members who are dealing with administration of a Trust or estate find a lot of satisfaction in paying a gift to a charity. A $10,000 donation to charity might mean you have less going to Beneficiaries, but in general, most people state they feel it’s worth it. Making that donation can be rewarding and fulfilling, particularly during a period of grief. Supporting a charity does not have to mean taking away from your loved ones. It can mean continuing to support the causes most important to you, even after you pass. Leaving money to a charity in a Will can be part of your legacy. It can be a way for you to pass on a final piece of yourself to a cause that means something to you. There’s no right or wrong way to pass down your estate. But you want to be smart about it, make sure your wishes are clear and those you love most know what your intentions are.