If you are like many people, you like to give to your favorite charities. This may be in line with your personal philosophy or religious beliefs, or just that you support certain causes. No matter the reason, charitable giving is a great way to help others. An added benefit is that giving to charity can provide you with many tax benefits, including in your estate planning. Here are some strategies you can use to continue to give to charities even after you are gone. An experienced estate planning attorney here in Pennsylvania can help you use these strategies to meet your goals.
What Strategies Can Be Used for Charitable Gifts?
There are a number of ways to make donations a part of your estate planning. One of the most common and easiest to do is to simply provide for a direct cash or property donation upon your passing. This can be done through a will or trust, with a specific bequest made to the charitable organizations of your choice. You can even name a charity as the beneficiary of a life insurance policy or your retirement plans. Making this kind of donation can reduce the taxable portion of any estate by the value of the cash or donated property.
Another common approach is to donate an appreciated asset. These might be things like stocks, bonds, real estate, or even a business. These assets would be subject to a significant capital gain on the increase in value. For example, if you purchased an office building in Pittsburgh in 1990 for $1 million, and today it has a fair market value of $30 million, your estate may be looking at a capital gains tax on this $29 million increase in value. Donating this asset would help your estate avoid this capital gains tax. It would also receive a tax deduction based on the current fair market value of the property.
There are also two other ways to donate to a charity through your estate: charitable trusts and private charitable foundations. While these are more complex than direct donations, they provide greater tax benefits to your estate and help facilitate the transfer to the charity in an expedited manner.
What Is a Charitable Trust?
This is a trust set up as part of your estate to direct funds and/or assets to the charities of your choice. You set up the trust while you are alive and transfer assets into it during your lifetime. This provides you with a gift tax deduction, reducing your personal income taxes. This is similar to donating directly to a charity, but the charitable trust allows you to control the assets during your lifetime.
There are two types of charitable trusts. A Charitable Remainder Trust provides you with income from the assets in the trust during your lifetime, with the asset being transferred to the charity upon your passing. This allows you to maintain your income during your lifetime. A Charitable Lead Trust provides the income from the assets to the charity during your lifetime, with the asset reverting to you or your beneficiaries after a period of time. This provides the charity with an income stream during the donor’s lifetime. The key tax differences between the two trusts are that the Charitable Remainder Trust reduces the tax liability of the estate, while the Charitable Lead Trust reduces taxes during the lifetime of the donor.
What Is a Private Charitable Foundation?
If you are considering making a substantial charitable donation, then you might consider having a private charitable foundation set up as part of your estate planning. This is a much more complicated proposition, as you will have to form a legal entity, qualify for charitable status under IRS rule 501(c)(3), and register with the Pennsylvania Bureau of Charitable Organizations.
With a private charitable foundation, you will have more control over how the assets are used for the charitable purposes that you desire. However, with the added burdens of cost and administration, this is something that should only be considered by people with substantial means. Still, this provides exceptional tax benefits, reducing the potential taxes for the estate, while also giving greater ability to direct charitable spending.
Call Our Firm Today to Help You Make Charitable Giving Part of Your Estate Planning
Charitable gifts are an excellent way to leave a legacy behind while also helping address the tax concerns of your estate. Whichever strategy you choose to achieve these goals, the experienced estate planning attorneys at Jones Gregg Creehan & Gerace, LLP, can assist you in creating the necessary vehicle while guiding you through the process. Contact us today.