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How can I incorporate charitable giving into my estate plan?

On Behalf of | Sep 12, 2023 | Estate Planning

A 2022 survey conducted by Caring revealed that just 33% of Americans have created an estate plan. The reasons behind this decision vary. Some individuals believe they lack sufficient assets to pass down to their heirs, while others may not have any children to leave their assets to.

Regardless of whether you have offspring or not, you probably have supported a cause or organization throughout your adult life. Fortunately, several estate planning options allow you to leave charitable gifts to your chosen organization after your death.

Use your will or trust

One approach is to include a charitable gift in your will or trust. Specify the exact legal name of the organization to prevent any confusion. You may also designate the gift for a general purpose or a specific use. However, check with the charity if you have a particular purpose in mind, as your preferred institution might not be able to use your inheritance as you desire.

Name a charity on a retirement account

Another option is to assign a charity as a beneficiary to one of your retirement accounts, such as a 401(k) or IRA. Since charitable organizations are exempt from income taxation, tax liabilities on withdrawals from the account will not apply. This approach not only safeguards the value of the account by avoiding taxes but also ensures that your other heirs will not be responsible for income tax on those withdrawals.

Use a charitable remainder trust

Though a more complex option, a charitable remainder trust can let you benefit your charity and your family. With a CRT, you can select one or more beneficiaries to receive annual payments from the trust for a predetermined period. Afterward, the remaining balance of the CRT goes toward the charitable organizations you have chosen.

Furthermore, if you name the CRT as the beneficiary of your IRA, it will not incur income tax upon inheriting the funds. Tax obligations will only apply to individual beneficiaries as they receive their payments. Additionally, the CRT qualifies for a partial estate tax deduction based on the final share the charity receives, further reducing the tax liabilities on your estate.

Through careful and considerate charitable giving, you have the potential to leave a lasting impact that extends far beyond your own lifetime.