Hyden, Miron & Foster, PLLC Law Blog

Saturday, October 31, 2020

The Benefits of Charitable Giving in Your Estate Plan

Charitable giving can be very personally fulfilling. There may be a cause or several causes close to your heart and you want to be sure to support their efforts by providing financial support. Whether it be a school you attended or a cause you have a particular passion for, charitable giving can provide you with all the personal benefits of giving back to something you believe in. On top of personal fulfillment, charitable giving can also have certain financial benefits. The financial benefits available through charitable giving even extend to properly crafted estate plans.

The Benefits of Charitable Giving in Your Estate Plan

When estate planning to include charitable giving, it is important to maintain a balance between your income needs, the financial needs of your beneficiaries, and the enjoyment that comes with giving back. While giving to charity during your lifetime may be appealing because of the joy it can bring, you may want to refocus that joy on knowing that you will be giving to a charity after you pass away. Giving to a charity through your estate plan can be a great way to reduce federal and state estate taxes which can otherwise put a significant financial burden on your heirs. Leaving money to a charity can reduce the amount included in the donor’s estate and, as a result, reduce estate taxes that would need to be paid.

The benefits of charitable giving in your estate plan can vary slightly depending on the means in which you use to give to the charity. One option is through a gift annuity. With a gift annuity, the charitable donor makes a lump sum gift to the charity. The gift is used to purchase an annuity and the annuity pays the donor a fixed percentage of the gift each year during his or her lifetime. The remaining value of the annuity is paid out to the charity upon the death of the donor. The annuity option is appealing because it allows the donor to retain a stream of income while still supporting the charitable cause.

A donor may also elect to gift assets that tend to greatly appreciate in value, such as stocks or real estate. In passing these assets to the charity, the donor can take a tax deduction for the fair market value of the gift. The charity then has the ability to sell the assets while being exempt from paying capital gains tax on the appreciated value of the assets.

Many people also opt to establish charitable trusts. A charitable trust will make payouts to a charitable cause during a term of years or over the course of your lifetime. It also preserves assets for your beneficiaries. If the trust is funded during your lifetime, the value of the remainder gifted to your beneficiaries will be taxable and, if funded at your death, will be subject to estate tax. A charitable trust can be a vehicle to reduce capital gains tax by placing substantially appreciated assets in the trust. You also have the option of donating part of the current value of the trust assets to charity while generating a payout from the trust to you or someone else during your lifetime.

Estate Planning Attorneys

Proper estate planning includes considerations of several important issues, taxes included. Taxes can have a substantial impact on the amount of your estate that goes to your loved ones and causes close to your heart. For estate planning you can count on, Hyden, Miron & Foster are here for you. Contact us today.

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