Estate planning isn’t just about protecting your assets for future generations; it’s also an opportunity to make a lasting impact on the causes you care about. By strategically incorporating charitable giving into your estate plan, you can leave a legacy that extends far beyond your lifetime. Understanding how to combine estate planning and charitable giving is crucial to leaving a positive mark on the world. Charitable giving involves donating money, assets, or property to nonprofit organizations, charities, or other philanthropic causes, which can take the form of one-time donations, regular contributions, and planned giving strategies. When considering this strategy, it’s important to work with a professional throughout the process to maximize the difference you make.
At Marcia L. Campbell, CPA, a division of Smith Marion, we have helped countless clients with estate planning. With decades of experience in this niche, as well as considerable financial expertise, we ensure clients’ final wishes are carried out, from planning to distribution, and their legacy is secure! Here’s what to know about including charitable giving in your estate plan!
What to Know About Estate Planning and Charitable Giving?
Incorporating charitable giving into your estate plan is a powerful way to make a difference and support a cause you are passionate about. But it’s important to understand some things about estate planning and charitable giving to determine if this is the right strategy for you.
Here’s what you should know about why you should consider incorporating charitable giving in your estate plan, the different types of charitable giving, and some helpful tips.
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Why Should You Include Charitable Giving in Your Estate Plan?
It’s important to first discuss the benefits of leveraging estate planning and charitable giving so you can understand why you should consider this strategy. There are several benefits to consider:
- Tax benefits: Charitable donations can often reduce your taxable estate, providing significant tax savings for you, the charity, and sometimes your loved ones. By donating to qualified charitable organizations currently, you could be eligible for a tax deduction for the value of your contribution, resulting in lower taxable income and a lower overall tax liability.
- Legacy building: Beyond the tax benefits and estate planning advantages, charitable giving offers you the opportunity to make a meaningful impact on causes that matter to you. Whether you support education, healthcare, environmental conservation, or other causes with your generosity, you can help organizations thrive and have a positive impact in the lives of others. Charitable giving can be a fulfilling part of feeling like you have lived a life of purpose.
- Family harmony: Charitable giving can help minimize potential family disputes over inheritance – this can be a huge concern if there are deep-rooted tensions you worry will delay or derail inheritance distributions.
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What Are Different Types of Charitable Giving?
There are several types of charitable giving to consider, though implementing them requires some professional guidance and support. The most common types include:
- Bequests: A bequest is a gift made through your will. Bequests allow you to specify the amount or a specific asset to be donated to a charity of your choice.
- Charitable Remainder Trusts (CRTs): A CRT is a trust that provides income to beneficiaries for a specified period, after which the remaining assets are transferred to a charity.
- Charitable Lead Trusts (CLTs): A CLT is the opposite of a CRT; it pays a fixed amount or percentage of the trust’s assets to a charity for a specified period, after which the remaining assets are distributed to beneficiaries, such as your children or grandchildren. You can fund these trusts during your life or through a will.
- Donor-Advised Funds (DAFs): A DAF allows you to make a charitable contribution that is often in the form of a range of appreciating assets and then recommend grants to charities over time. Keep in mind that DAFs often come with administrative costs, and assets contributed to them are irrevocable.
- Life insurance policies: You can also use life insurance policies as part of your strategy for estate planning. You can either gift a nonprofit an existing whole or universal life insurance policy while you’re alive or name a charity as a beneficiary of your life insurance policy.
- Private foundation: If you have a significant net worth, setting up a private foundation enables a hands-on approach to charitable giving and can create a long-term philanthropic legacy while managing estate taxes. People often create private family foundations with an eye toward the future, creating a framework for growing charitable assets in a tax-advantaged environment while allowing control to be passed on to future generations.
Related Article: How to Help Charities Receive Contributions
Tips for Effective Estate Planning and Charitable Giving
If you are interested in leaving a lasting legacy by incorporating charitable giving into your estate plan, you should consider several tactics and approaches to do so effectively:
- Choose your charities carefully: Select charities that align with your values and have a proven track record. Ensuring that you are donating to an organization with integrity and that they will use your donation wisely is crucial to solidifying your legacy. Start by considering which organizations are making an impact in your community on a larger scale, and after narrowing down your choices, research the charities to ensure they meet the criteria you’re looking for.
- Determine how much you want to give: Once you have chosen the charities you want to support, determine how much money you want to donate – this can be a percentage of your estate, a fixed amount, or a combination of both. Depending on the cause, you might want to consider the special needs the charities might have. For example, a soup kitchen might need food, while an animal shelter might need supplies.
- Consult with professionals: It’s crucial to work with professionals at virtually every step of the process when navigating estate planning and charitable giving. A CPA can help you understand the tax implications of your charitable giving strategy, while a professional trustee or executor and estate planning attorney can help you set up and manage a will or trust to ensure that your wishes are carried out and your legacy is cemented. Remember, for your wishes to be legally binding, you need to ensure they are carried out according to the law, which includes designating specific charities as beneficiaries of your estate.
- Diversify your giving: Consider supporting multiple charities to spread and maximize your impact, even if they are for similar causes – in other words, you don’t want to put all of your legacy eggs in a single charity basket!
- Review your plan regularly: As your financial situation and charitable goals evolve, it’s important to review and update your estate plan with a team of trusted professionals. Ideally, it would be the same professionals you started with because they will have a deep understanding of what you want to accomplish and why this cause is important to you.
“Weaving charitable giving into your estate planning is a great way to not only leave a legacy behind that your loved ones will be proud of, but it can also be a great way to capitalize on tax benefits. With strategy, you can ensure you leave a positive mark on the world by giving back and fueling a cause that is near and dear to your heart.”
– Marcia L. Campbell, CPA and Private Fiduciary
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Understanding Estate Planning and Charitable Giving is Crucial to Leaving a Lasting Legacy. Always Work with a Professional to Help!
By strategically combining estate planning with charitable giving, you can not only secure your financial future but also leave a lasting impact on the causes you care about. However, navigating the complexities of estate planning and charitable giving requires careful planning and expert guidance. To solidify the legacy you deserve to leave behind, always work with a professional who is committed to helping you achieve your financial and philanthropic goals. A team of professionals can assist you in creating a comprehensive estate plan that aligns with your values and maximizes your impact.
Build a legacy that lasts by giving back to the world after you are gone.
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