Year-End Options for Giving to Charity
Year-End Options for Giving to Charity
2024.12.13
The desire to make a difference doesn't end when we're gone. For many people, incorporating charitable giving into their estate plan provides a way to support causes they care about while creating a lasting legacy. Whether you want to establish a scholarship fund, support medical research, or help your local community, thoughtful charitable planning can maximize your impact while potentially providing tax benefits for your heirs.
Since this time of year invokes a desire to give to those less fortunate, and take advantage of tax benefits, let's explore how you can do that by including charitable giving in your estate plan.
Understanding Your Charitable Giving Options
When it comes to charitable giving through your estate plan, you have several options to consider. The key is finding the approach that best aligns with your values, goals, and overall estate planning strategy. Some common methods include:
Direct Bequests: The simplest way to include charity in your estate plan is through a direct bequest in your will or trust (“bequest” simply means leaving something to someone in your estate plan, whether it’s money or personal belongings). You can specify a fixed dollar amount or percentage of your estate to go to your chosen charitable organizations. This approach provides flexibility and can be easily modified if your circumstances change.
Note that for tax purposes generally, any charitable bequest (to a “qualified” charity per the IRS, typically a 501(c)(3) organization) is tax deductible and will reduce the tax liability of your estate. If you want to receive a tax deduction now, however, give an outright gift. In 2024 you can give up to $18,000 to each person or organization without having to report the gift to the IRS or pay gift tax. That number increases to $19,000 per donee in 2025.
Required Minimum Distributions with Qualified Charitable Distributions (QCDs). If you're over 70.5 (or have parents who are) and don't need your required minimum distributions (RMDs) from your retirement accounts to live on, here is a tax-saving, life-affirming strategy: Consider making a qualified charitable distribution (QCD) of your RMDs to a 501(c)(3) of your choosing before year-end, and lower your taxes, support your favorite cause or movement, and possibly kick yourself down into a lower tax bracket for your other taxable income. You can distribute up to $105,000 (2024) or $108,000 (2025) directly to a 501(c)(3) public charity of your choice.
Charitable Trusts: For those with larger estates, charitable trusts offer sophisticated ways to benefit both charity and your heirs. A charitable remainder trust can provide income to your beneficiaries for a set period, with the remaining assets going to charity. Conversely, a charitable lead trust can provide income to charity for a period, with the remainder going to your beneficiaries. Note that charitable trusts are typically used to save money on capital gains tax as part of a sale transaction.
Making Your Charitable Giving More Effective
To ensure your charitable giving achieves maximum impact, consider these important factors:
Tax Implications: While tax benefits shouldn't be the primary motivation for charitable giving, proper planning can help reduce estate taxes and maximize the impact of your gifts. Certain charitable giving strategies as discussed above, can provide immediate income tax benefits during your lifetime while reducing estate taxes after your death.
Timing of Gifts: Consider whether making charitable gifts during your lifetime might be more beneficial than waiting until after your death. Lifetime giving allows you to see the impact of your generosity and may provide immediate tax benefits.
Selection of Charities: Research potential charitable recipients carefully. Look for organizations with strong track records of effectively using donations to advance their missions. Consider whether you want to support large national organizations or smaller local charities.
Involving Your Family
Charitable giving through your estate plan can do more than just support worthy causes – it can help instill philanthropic values in future generations. Consider these approaches:
Family Discussions: Talk with your family about your charitable intentions and the causes that matter to you. These conversations can help your loved ones understand your values and motivations while potentially inspiring their own charitable giving.
Educational Opportunities: Use your charitable giving as a teaching tool to help younger family members learn about financial responsibility, social issues, and the importance of giving back to the community.
Creating Your Charitable Giving Plan
We can help you develop a comprehensive charitable giving strategy that aligns with your overall estate planning goals. I'll work with you to:
Identify the charitable causes most important to you
Select the most appropriate giving vehicles for your situation
Structure your giving to maximize tax benefits
Ensure your charitable intentions are properly documented
Create a plan for involving future generations
We'll also help you maintain flexibility in your plan, recognizing that charitable organizations and family circumstances can change over time.
While estate planning often focuses on what happens after we're gone, charitable giving allows you to start building your legacy today. By thoughtfully incorporating philanthropy into your Life & Legacy Plan, you can create positive change that extends far beyond your lifetime while potentially providing tax benefits for your loved one
