If you want to leave a legacy and make a difference, consider making charitable giving part of your estate plan. With the right estate planning and charitable giving strategies, you can maximize your donation while minimizing the tax burden.
Many Americans Are Making a Difference with Charitable Giving
According to the Lilly Family School of Philanthropy, U.S. charities received approximately $484.85 billion in 2021. Approximately $46.01 billion of this was donated via bequest.
There are many reasons for including a charity in your estate plan:
- You don’t have any heirs or your heirs are already wealthy and do not need an inheritance. Your estate will do more good in the hands of a charity.
- The charity supports a cause that is dear to your heart. Even if you have family members whom you want to include in your will, you may set aside some assets for a charitable cause you care about. For example, if you care deeply about the environment, you might make a bequest to a charity that supports environmental causes.
- The organization has impacted you personally and you want to give back. You may have served on a board for the nonprofit or volunteered in some way. Alternatively, the charity may have supported you or someone you care about.
Naming a Charity as a Beneficiary in Your Will or Trust
People often think of naming their family members as beneficiaries in their will, but you can also name a nonprofit organization. It’s possible to name a charity as your only heir, meaning the charity will receive your entire estate after any debts are paid. However, it’s also possible to name a charity as one beneficiary along with others. Decide exactly what you want to leave to the charity and make this clear in your will.
Another option is to set up a charitable trust for the nonprofit organization of your choice. This can have certain tax advantages, especially if you’re making a large donation.
Using Life Insurance to Support a Charity
You can also use life insurance in your charitable giving strategy. One way is to name the charitable organization as a beneficiary on your life insurance policy. You can name the nonprofit as your only beneficiary or name multiple beneficiaries. You can also use a nonprofit as a backup beneficiary in case your primary beneficiary dies before you do.
Some life insurance companies offer a charitable giving rider, which means the insurance company will pay an additional benefit to the nonprofit on top of the benefit to your primary beneficiary.
Gifting Assets Other Than Cash
Although cash may be one of the most straightforward assets to donate to a charitable cause, there are other options.
- If you own stocks, you can gift them to a charity. If the stocks have appreciated in value, donating them – rather than liquidating them and donating the proceeds – can avoid the need to pay capital gains taxes.
- Real Estate. If you own undeveloped land or land with a house or another building, you could donate the property to a charity as part of your estate plan. As with stocks, donating real estate that has appreciated in value can help you avoid capital gains taxes.
- Some charitable organizations accept and welcome vehicle donations.
- Items of Historical Value. You may want to donate items of historical value to a museum or another nonprofit that can care for the item properly while also making it available to the public. You may also decide to donate art for similar reasons.
Including a Charity as Part of a Total Failure Clause
Have you ever wondered what happens to an estate if all of the heirs die before the decedent? It doesn’t happen often, but in rare cases when no heirs can be found, the estate passes to the state.
To avoid this, you can include a total failure clause in your will stating what should happen to your estate if all your heirs die before you. A total failure clause can name a charity as the beneficiary.
Creating Your Charitable Giving Strategy
It’s probably unwise to make your charitable gift a surprise. This can have unexpected consequences – for example, if you donate an item the nonprofit cannot accept. Charities could also miss out on life insurance proceeds if they are unaware of the policy. To avoid problems, talk to the organizers at the nonprofit while you’re creating your estate plan.
Need help with estate planning and charitable giving as well as the tax implications? Contact Skinner Law.