Charitable Giving in My Estate Plan

For many individuals, charitable giving is a large part of their lives. Continuing this tradition after your death by including charitable giving in your estate plan is a wonderful way to help cherished organizations. Done properly, charitable giving can also result in substantial tax benefits.

There are many different ways that you can include charitable giving in your estate plan in Arizona. An experienced estate planning attorney, such as top Phoenix attorney Nicole Pavlik, can help you find the strategy that best fits your needs and goals based on your unique family circumstances and financial situation. Below is a list of seven ways to include charitable giving in your Phoenix estate plan.

1. Lifetime Gifts of Cash. Giving directly to a charity while you are alive provides an immediate tax benefit by reducing income tax liability. Additionally, donating property while you are alive can decrease the size of your taxable estate and reduce estate tax liability when you die. Your lawyer can help you plan the timing and size of your gift.

• Leave Property to a Charity in Your Will. One option is to leave a gift of money or property directly in your will. This strategy can appeal to individuals looking for a relatively straightforward option. You simply add a provision to your will that states the property you are gifting, the charity’s name, and the charity’s federal tax identification number. You can specify the purpose you want the funds used for, but the desired use must be within the charity’s organizational powers.

The donation will reduce the size of your taxable estate for federal estate tax purposes. As of 2022, the federal estate tax exemption is $12.06 for individuals. The charity can sell the asset without paying capital gains taxes.

• Charitable Remainder Trust. A charitable remainder trust (CRT) is a type of irrevocable trust that distributes income to a named beneficiary (you or someone else) for a specified term of up to 20 years or the life of one or more beneficiaries. At the end of that period, the property remaining in the trust is dispersed to a predetermined charity. It allows you to have the best of both worlds—receiving an income while still leaving a charitable legacy.

The initial contribution to the charitable remainder trust results in a partial income tax deduction, and the trust assets grow tax-free. Furthermore, the trust property is not included in your taxable estate and can reduce or eliminate federal estate tax liability. When the charity sells the trust property, they do not need to pay capital gains taxes.

• Charitable Lead Trust. A charitable lead trust (CLT) is a type of irrevocable trust that provides payments to one or more charities for a set period. After the end of that term, the remaining trust property is distributed to non-charitable beneficiaries (such as family members). It essentially is the reverse of a charitable remainder trust. CLT can provide income tax deductions and reduce or eliminate gift and estate taxes of the donor. 

• Charitable IRA Rollover. If you are over 70 ½ years old, you can gift up to $100,000 per year to charities directly from your IRA. This type of gift is called a Qualified Charitable Distribution (QCD). 

This strategy benefits individuals who do not need the required minimum distributions from their IRA for living expenses. By donating the distribution to charity, they avoid having to pay taxes on the distribution, and at the same time, they are lowering the value of their taxable estate.

• Gift Appreciated Stock. You can donate publicly traded stock to a charity. If the stock has appreciated in value, the charity will not have to pay capital gains tax. You receive a charitable income tax deduction equal to the stock’s fair market value at the time of the gift. 

• Beneficiary of Retirement Account. You can name a charity as a beneficiary of all or a percentage of your non-Roth retirement account. The donation qualifies as an estate tax charitable deduction. The charity can sell retirement assets without having to pay income taxes.

• Gift Life Insurance. You can designate a charity as the beneficiary of all or a percentage of your life insurance policy. The annual premium payment is tax deductible as a charitable donation.

Your Phoenix Estate Planning Attorney

Nicole Pavlik is an experienced Phoenix estate planning attorney who will help you create a comprehensive estate plan that includes charitable giving. If you have questions about estate planning, call Nicole Pavlik Law Firm today at (602) 635-6176 for a free consultation.