You may have a number of reasons to give to charity – to help a cause you are passionate about, to honor a loved one, or to simply do a good deed. You need to plan well if you want to pass on your assets smoothly after death. While you don’t need to be a millionaire to create a social or charitable impact – there are several decisions you will need to take within your estate plan to fulfill your wishes.
An experienced estate planning attorney in California will help you understand the best way of incorporating charities and any favorable tax advantages that are applicable to you in an estate plan.
Use a Charitable Revocable Trust
Create a revocable living trust to incorporate charitable donations in your estate plan. There are several benefits to using a revocable trust for your charitable donations. The beneficiary will not need to undergo the probate process for accessing the available funds. The assets will be transferred automatically to the charity of your choice when you pass away.
By giving through a charitable trust, you can also have greater control over your donations and gifts. You will be able to identify the actual beneficiaries that receive the trust money. You can list out the purposes for which the trust fund should be used. A knowledgeable estate planning attorney will be able to suggest different types of trusts and the best choice for your particular purpose.
Many people prefer creating a trust that continues to earn interest. This allows charities to have a steady income for generations.
Charitable Rollover from IRA
If you are 70.5 and above, you can contribute up to $100,000 a year to charities directly from your IRA account. This is referred to as qualified charitable distributions (QCD.) Donating directly from your IRA account has several benefits. It will count towards the necessary minimum distributions that are required to be made after you reach a certain age.
From April 1st, 2020, the age from which seniors are required to make minimum distributions has been increased to 72 from 70.5 as per the SECURE Act. Required minimum distributions are taxed by the IRS as ordinary income. You can use qualified charitable donations to reduce your tax consequences.
You can donate appreciable stock to the charity of your choice. This can also help you from a tax standpoint. For instance, if you own a publicly traded stock that has greatly appreciated in value, you won’t need to pay taxes on it if you donate the stocks to your favorite charity. You will also earn a deduction on the donation made.
You can easily avoid capital gains taxes as well on the appreciation amount. Giving appreciated stock instead of selling it can be beneficial to your tax strategy.
Create a Charitable Remainder Trust (CRT)
You can always name your IRA beneficiary as a charitable remainder trust. In charitable remainder trusts, the beneficiary receives payments from the trust, usually annually. After the beneficiary’s interest in the trust comes to an end, the remaining assets will be distributed from the trust to any charity of your choosing.
Bequest Through Your Revocable Trust or Will
A direct way of benefiting charity following your death is to leave a bequest in your revocable trust or will. This is a sentence in either the trust or will to leave a particular amount to a specific charity. You will need to identify the specific charity that you want to bequest the money to.
You may also want to state the purpose for which you want the charity to use the funds. This way the charity will not use the funds for “general purposes” and instead divert it to the specific purpose you have in mind. You should use correct legal names since a number of charities have similar names. Make sure the charity can fulfill the purpose or they may not be able to accept the bequest.
In case of specific requests, it is best to contact the development office to confirm whether the charity can achieve the objective or not. Typically, charitable bequests qualify for an estate tax deduction. They can substantially reduce the overall estate tax burden. The current federal estate exemption is set at $11.54 million.
Beneficiary to Your Retirement Account
You can name the charity as a beneficiary to a percentage or all of your non-Roth retirement accounts. This includes IRA, 401(k), 403(b) and others. The same rules apply when naming a charity in your trust or will. The best part is that charities are tax-exempt, which means they can withdraw assets from the retirement account without any tax burden.
In general, beneficiaries of retirement accounts are required to pay income taxes on any distributions received. The best way to handle your assets is to let your loved ones benefit from non-taxable assets while making your favorite charities the beneficiaries of any retirement accounts you hold.
Get a Capable and Proven Estate Planning Attorney on Your Side
Whether you want to create a new estate plan or make changes to an existing one to include charitable giving, the experienced estate planning lawyers at Garmo & Garmo, LLP are here to help. To set up your free and confidential consultation with our trusted legal team, call 619-441-2500 or reach us online.