Incorporating planned giving, also known as legacy giving, into your estate plan is a profound way to support the causes you care about. A lesser-known benefit of planned giving is that it can provide tax benefits that makes for an even stronger incentive. By thoughtfully designating a portion of your estate to charitable organizations, you can create a lasting impact and potentially reduce the tax burden on your estate. In other words, it can be a win-win for everyone involved.
Understanding Planned Giving
Planned giving involves making arrangements to donate assets to charitable organizations as part of your estate plan. This can be achieved through various methods, each offering unique benefits:
Bequests: Including a bequest in your will or trust allows you to specify a particular amount or percentage of your estate to be donated to a nonprofit organization. This method is straightforward and provides flexibility, as you can adjust your bequest if your circumstances or intentions change.
Life Insurance Policies: By naming a nonprofit organization as a beneficiary of your life insurance policy, you can commit a substantial future gift without impacting your current financial situation. This method allows you to leverage life insurance to support causes important to you.
Retirement Plan Assets: Designating a charity as a beneficiary of your retirement accounts, such as a 401(k) or IRA, can be tax-efficient. Since many retirement plan assets are subject to income taxes when inherited by individuals, directing these assets to a nonprofit can maximize the impact of your gift, as charities are tax-exempt and can utilize the full amount.
Charitable Trusts (CRTs and CLTs): Charitable remainder trusts (CRTs) and charitable lead trusts (CLTs) are effective tools for planned giving. With a CRT, you or designated beneficiaries receive income from the trust for a specified period or for life, with the remaining assets eventually going to a charitable organization. A CLT works in reverse, allocating an income stream to the charity first for a set term, after which the remaining assets pass to your beneficiaries. Both options can provide tax benefits, including income and estate tax savings, while allowing you to support the causes you care about. Trust & Will currently does not offer this product or service. However, we are always expanding and improving upon our platform to better serve our members.
Tax Benefits of Planned Giving
Incorporating charitable giving into your estate plan offers several tax advantages:
Estate Tax Deductions: Charitable gifts made through your estate are generally deductible from its value, potentially reducing or eliminating federal estate taxes. This means that the value of your charitable contributions is excluded from your taxable estate, lowering the overall estate tax liability.
Income Tax Deductions: Certain planned giving vehicles, like CRTs and CLTs, may provide immediate income tax deductions based on the present value of the future charitable gift. This can reduce your taxable income in the year the gift is established.
Capital Gains Tax Savings: Donating appreciated assets, such as stocks or real estate, allows you to avoid capital gains taxes that would be incurred if the assets were sold. The charity can sell the assets tax-free, and you receive a charitable deduction for the full fair market value of the asset, enhancing the impact of your contribution.
Integrating Planned Giving into Your Estate Plan
To effectively incorporate planned giving into your estate strategy:
Reflect on Your Charitable Objectives: Consider the causes and organizations that resonate with your values and the legacy you wish to leave.
Consult with Professionals: Engage with estate planning attorneys and financial advisors to explore the most suitable planned giving options for your situation. They can provide guidance on structuring your gifts to maximize both philanthropic impact and tax benefits.
Communicate with Beneficiaries: Discuss your intentions with family members and beneficiaries to ensure they understand and support your philanthropic goals, fostering transparency and shared commitment to your legacy.
By thoughtfully integrating planned giving into your estate plan, you can support the causes that matter most to you while also benefiting from tax advantages that preserve your estate's value for your loved ones. This strategic approach ensures that your legacy of generosity is preserved, making a meaningful difference for future generations.
Ready to get started? At Trust & Will, we’re here to help keep things simple. You can create a fully customizable, state-specific estate plan from the comfort of your own home. Our users have left over one billion dollars (and counting) to nonprofit organizations through estate plans created on the Trust & Will platform. Take our free quiz to see where you should get started, or compare our different estate planning and settlement options today!
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