Back in 5th century Athens, Greek playwright Aeschylus defined philanthropy as the “love of humanity.” Though each person decides what charities, organizations and causes matter most to them, anyone who donates their time, energy or funding to help make life better for others may be considered a philanthropist. Philanthropic giving as part of your estate plan provides a designated, organized provision for specific charities, organizations, programs and groups you value and want to support.
“One of the easiest and most meaningful ways to practice philanthropy is to incorporate it in your estate plan,” says Estate Planning and Tax Law attorney Sarah Uhrik. “It allows you to assist and pay tribute to important causes and entities as part of your legacy.”
By meeting with your estate planner, you can earmark how you want to benefit the charities, institutions and organizations you specify. You have several options for philanthropic estate planning, all of which allow you to decide when, what and how much to donate, without interfering with what your heirs receive. Having terms spelled out in your estate plan relieves your loved ones of the responsibility and possible tax burden that might be left to them if you entrust them to make those donations for you.
“I often encounter situations where a person will leave everything to, say, a spouse or an adult child, with instructions that that person donate a certain amount to a charity on their behalf,” says Ms. Uhrik. “This can create unwelcome tax consequences for the heir, as well as the sometimes-onerous task of carrying out the decedent’s requests. Having your estate in order, with specific directions cemented in a legal document, ensures that your wishes are honored and your heirs aren’t negatively impacted.”
Benefits of Including Charitable Giving in Your Estate Plan
Foremost, you know that the charities and organizations you honor will get exactly what you intend to leave them. And, as stated above, you don’t leave the task to others, who may not be prepared (or willing) to fulfill your directions.
As an added bonus, philanthropic giving can offer benefits to you as well, including potentially creating deductions for income taxes during your lifetime and can lower your gross estate for estate tax purposes. “As an estate planning and tax law attorney, I have tremendous experience structuring philanthropic giving so that it can provide immediate and future tax benefits. The right planning can produce real benefits for everyone involved.”
While most people give to charities, programs, schools, churches – whatever they most treasure – out of big-heartedness and devotion, there’s no reason not to take advantage of the tax benefits that come with this generosity. Estate planning allows you to do everything you want to do as intelligently as possible.
How to Structure Philanthropy into Estate Planning
There are multiple ways to structure charitable giving into your estate plan. Here are a few:
1. In your will or revocable trust
By having your bequest stated directly in your will or trust, you can easily state which charity or organization you want to donate to, provide a specific amount, and even include the purpose you’d like your bequest used for.
Charitable bequests are eligible for an estate tax deduction to reduce taxes.
2. Donate appreciated stock
Any publicly-traded stock that has grown in value can make a great philanthropic donation, rewarding not only the charitable organization, but you and your estate as well. By donating stock that has increased in value, you avoid capital gains tax on any appreciation, and get a tax deduction for the full fair market value of the stock at the time it is gifted. “This is one way to gain tax advantages now while supporting an organization that is important to you.” says Ms. Uhrik.
3. Qualified charitable distribution
If you’re over 70½, you can donate up to $100,000 to charity each year directly from your IRA. Called a Qualified Charitable Distribution, you can apply this gift as part of your required minimum distribution and exclude the donated amount from your income, potentially reducing your taxes.
4. Gift your IRA directly
If you have an IRA, 401(k), 403(b) or other non-Roth retirement account, you can name a charity, institution or organization as a beneficiary of all or a percentage of the account. Again, if you donate to a charity, it will receive the donation without tax consequences.
By donating to a charity or other entity directly from your IRA, you engage in philanthropic gifting without the tax implications that your individual heirs would encounter if they inherited the account. If you have other assets available for individual heirs, they may be taxed at a lower rate than your IRA, or even be free of taxes altogether.
Again, anything you leave to a charity upon your death entitles your estate to a charitable deduction that can lower your estate taxes, benefitting your heirs.
Other options include more complex services, such as a Charitable Remainder Trust, which can allow you to gift to both a charity and a loved one for an outlined period of time. CRTs come with rigid rules and specifications, which can be explained during your estate planning appointment. “I explain everything in easy-to-understand terms, so there’s no confusion,” says Ms. Uhrik. “However you wish to to structure your philanthropic estate planning, I’m here to make it easy. I work best when clients can articulate their goals – then my job is to implement a plan to achieve those goals.”
Philanthropic giving benefits everyone, including you. For more information on how to make your estate planning all it can be, contact Sarah Uhrik, who will secure your support of what you cherish, now and going forward.