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Have you thought about the many reasons to give to charity? Honoring a loved one, advancing a worthy cause, and a genuine interest in helping others may be just a few of the motivations that help make the world a better place.Charitable giving, however, can also come with tax benefits and leaving money to a charity in your estate can have the added benefit of helping your heirs.

First, many people give to charity out of a sincere desire to do good. The government offers certain tax benefits as an incentive, and it can be best to plan to take maximum advantage of those benefits whenever possible. This generally means reducing or eliminating asset tax liabilities and lowering the taxable value of your estate. Let us discuss several ways you may be able to accomplish this: 

  • Give appreciated assets.  Assets that have appreciated in value since their purchase, like real estate or stock, can be excellent charitable donations. Not only can the gifts reduce the taxable value of your estate by the appreciated value of the assets at the time they are donated, but your heirs may avoid capital gains taxes once the assets are redeemed.
  • Will or revocable trust.  Consider leaving a bequest to a specific charity, or charities, in either your will or trust. Make sure to state the amount and the purpose for the funds. Establishing a gift percentage of your estate, rather than a dollar amount, can also protect your heirs from being crowded out if asset values decline in the future. 
  • Charitable remainder trust.  A charitable remainder trust involves naming a charity the beneficiary of the trust and paying designated family members distributions for a specified period of time, or even their lifetimes. Any remaining funds would then be donated to the charity.
  • Retirement accounts.  Tax-qualified retirement accounts like IRAs and 401k’s can be directly gifted to a charity, and the benefits can be similar to donating appreciated estate assets. These retirement accounts are allowed to grow tax-free during working years but are subject to hefty tax liabilities when funds are withdrawn. Retirement accounts can also fund charitable remainder trusts, which could circumvent new restrictive retirement reforms contained in the SECURE Act of 2019.

These are complex estate planning issues, but ones that, when properly resolved, can bring many benefits to you and your loved ones. For help navigating these issues, please reach out to our office to schedule an appointment.