Making charitable giving a part of your estate plan is a great way to carry on your legacy and give back to causes that are important to you. As an additional benefit, charitable giving can minimize income and estate taxes.
If you are considering including charitable giving in your Phoenix estate plan, you should reach out to an experienced estate planning attorney. There are various ways to make it a part of your estate plan, and a professional can help you decide the best fit for your circumstances. Below are six popular strategies on how to include charitable giving in your Phoenix estate plan.
1. Name a Charity as a Beneficiary in a Will. Probably the simplest way to include charitable giving in your estate plan is to name a charity as a beneficiary in your will or living trust. You do this by having a provision in your will that states: 1) the amount of money or specific piece of property that you want to give, 2) the name of the charitable organization and its federal tax identification number, and 3) the purpose for which you want the charity to use the funds. The desired use must be within the charity’s organizational powers, or they will be forced to refuse the gift. It is common to specify that the donation is used for the organization’s general purpose.
Leaving a gift to charity in your will decreases your estate tax liability. If the bequest is real estate (or another piece of specific property), the charity can sell the asset without paying capital gain taxes.
2. Gift Appreciated Stock. You can gift a charitable organization publicly traded stock that has appreciated in value. When you use this method, you receive a charitable income tax deduction equal to the stock’s fair market value. In addition, you avoid the capital gains taxes that you or your heirs would have to pay if you kept the stock. Charities are tax-exempt, so they can sell the stock without paying capital gain taxes.
3. Charitable IRA Rollover. You can make a Qualified Charitable Distribution (QCD) by donating to a charitable organization directly from your individual retirement account (IRA). Only individuals over 70 ½ can make a QCD, and the maximum donation is $100,000 per year. A QCD counts towards the required minimum distributions that account holders over the age of 72 must take under the recently passed SECURE Act. Typically, the required distributions are considered taxable income and taxed at ordinary income rates. However, when used as a charitable IRA rollover, the account holder avoids these taxes.
4. Appoint a Charity as the Beneficiary of a Retirement Account. You can name a charitable organization as a beneficiary of your non-Roth retirement account (IRA, 401(k), 403(b), etc.) You can decide to gift a charity all the property in the account or just a percentage of the property. After your death, the charity will receive the assets tax-free. This is in contrast to beneficiaries who are not charitable organizations who have to pay income tax at the ordinary rates on any distribution they receive from a retirement account. Additionally, assets left to a charity qualify as an estate tax charitable deduction and lower your federal estate tax liability.
These tax benefits are important to consider because the SECURE Act requires most IRA beneficiaries to withdraw all funds from a retirement account within ten years of the account holder’s death. This rule limits your heirs’ ability to stretch out distributions and continue investments with deferred taxes, which was previously possible before the passage of this act.
5. Gift Life Insurance. You can name a charitable organization as the beneficiary of your life insurance policy. This strategy makes the payment of your annual premium tax-deductible as a charitable contribution.
6. Create a Charitable Remainder Trust. A charitable remainder trust is a gift of property to an irrevocable trust where the donor receives an income stream from the trust from a term of years or for life, and the chosen charity receives the remaining trust assets at the end of the trust term. You receive an immediate income tax charitable deduction when the CRT is funded based on the present value of the assets that will eventually go to the named charity.
Your Phoenix Estate Planning Attorney
Nicole Pavlik is an experienced Phoenix estate planning attorney who can help you include charitable giving in your estate plan. If you have questions about charitable giving and estate planning, call Nicole Pavlik Law Firm today at (602) 635-6176 for a free consultation.