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What Are the Best Practices for Incorporating Charitable Giving into Your Estate Plan?

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How Can You Effectively Include Charitable Donations in Your Estate Plan?

Integrating charitable giving into your estate plan is a thoughtful way to support causes you care about. Following best practices and beginning the planning process early is essential to ensuring that your philanthropic goals are met. A skilled estate planning lawyer can help you clarify your charitable intentions and build a plan that allows you to leave a meaningful legacy, no matter the size of your estate.

Research and Select Charitable Organizations Carefully

Conduct thorough research on the charities you are considering to ensure they are reputable and truly align with your values. Verifying that the charity is legitimate and capable of using your donation as intended is crucial. You can utilize the IRS’s Tax Exempt Organizations Search tool to check whether a charity officially has exempt status.

Be wary of scams and organizations that do not use donations effectively. Nonprofits are legally required to make their IRS Forms 990 or 990 PF from the last three years publicly available. These tax forms provide transparency to donors regarding the charity’s finances. The organization’s website can be a good starting point for research, but an online presence does not necessarily mean the organization is legitimate. You should cross-reference any data from a charity’s website with information from charity watchdog groups, trustworthy media sources, and the Secretary of State or other monitoring agencies.

Choose the Right Giving Options for Your Circumstances

There are many ways to support your preferred causes during and after your lifetime. It’s important to discuss your finances and charitable gifting goals with a knowledgeable attorney as you explore incorporating different giving options into your estate plan. Discussing your intentions with your executor and family members to make certain everyone is aware of your wishes is also critical to avoiding misunderstandings.

Informing the charity may also be wise if you plan to donate complex assets or a large amount. Prior notice can allow the organization to prepare and make the most of your generous donation. Two of the most common estate planning methods of gifting assets to charity involve using your will to specify your bequests or establishing a trust.

Wills and Charitable Bequests

Having a valid will in place as part of your estate plan is vital. A detailed will ensures your property is distributed how you prefer after you are gone. Giving assets to charity through your will can be done in a number of ways, such as:

  • Specific bequests: You can specify a certain amount of money or particular assets to be given to a charity in your will. This is a straightforward way to leave a legacy to your chosen organizations.
  • Percentage bequests: Instead of a specific amount, you can designate a percentage of your estate to go to charity. This approach adjusts for the size of your estate at the time of your death.
  • Residual bequests: After other specific bequests are made to heirs and expenses are paid, you can leave the remainder or a portion of the remainder of your estate to one or more charities.
  • Contingent bequests: If certain conditions are met, such as if your primary beneficiaries predecease you, you can stipulate that your estate or a portion of it should go to charity.

Trusts

Trusts are a popular tool for estate planning and can be used to direct assets to one or more charitable organizations. A trust is funded by a grantor who transfers money or assets from their estate into the trust. A trustee oversees the funds in the trust and is responsible for acting in the beneficiaries’ best interests. A wide range of trust types exist for specific purposes, including charitable giving. Examples include:

  • Charitable Remainder Trusts (CRTs): A CRT allows you to receive income (or provide income to another person) for life or a set number of years, after which the remaining assets go to your chosen charity. CRTs can offer tax benefits during your lifetime and support your philanthropic goals after your passing.
  • Charitable Lead Trusts (CLTs): A CLT provides income to a charity for a set period, with the remaining assets eventually passing to your beneficiaries. CLTs can reduce gift and estate taxes on the transfer of assets to your heirs.
  • Revocable Living Trusts: You can create a revocable living trust and name a charity as a beneficiary, similar to a will. This type of trust allows for more privacy and can avoid probate, but it also enables you to change beneficiaries if your circumstances or wishes change.

Consider the Tax Implications

Taxes can significantly impact an estate, considerably reducing the value for your beneficiaries. However, by utilizing careful tax planning strategies, including charitable giving plans, you may be able to reduce the tax burden on your estate. These tactics can maximize the impact of your donations while also providing financial advantages to your estate and heirs.

When you contribute to a donor-advised fund (DAF) or make lifetime gifts to qualified charitable organizations, you may be eligible for an immediate income tax deduction, which can lower your taxes for that year. Donating appreciated assets, such as real estate or stocks, directly to a charity or through a charitable trust can allow you to bypass the capital gains tax that would be owed if these assets were sold. By donating to charity as part of your estate plan, you can also reduce the size of your taxable estate, which may lower the overall estate tax burden. This reduction is particularly beneficial for high-value estates that exceed the federal estate tax exemption amount and would otherwise be subject to high tax rates.

Why Consult a Knowledgeable Estate Planning Attorney?

If leaving a charitable legacy is an underlying goal for your estate plan, an experienced lawyer from Metropolitan Law Group can help you turn those dreams into a reality. Our firm can guide you through incorporating charitable giving strategies into your estate plan and help you keep your plans and documents up to date as your circumstances change. Contact our firm today at 612-448-9653 to schedule a free 15-minute strategy call.

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