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Five Ways to Use Charitable Giving in Your Estate Plan

At the end of the year many of us are thinking about making charitable gifts. Whether we want to support communities with disadvantages or our favorite nonprofits, planning for charitable giving is important for any estate plan. Taking the time to discuss your charitable giving plan with a lawyer can be incredibly helpful, particularly because you can structure your giving in a way that helps you lower your tax liability. Charitable gifts are often eligible for estate tax deductions, but it is important that they fall within the numerous tax regulations associated with charitable giving. We have listed some of the most effective charitable-giving tools below.

Charitable Rollover

If you are over the age of 70.5, you can give up to $100,000 per year to charities straight from your IRA account. These types of donations are known as qualified charitable distributions (QCD). There are several benefits that stem from donating to your favorite charity straight out of your IRA account. Your donation will count towards any required minimum distributions, which are distributions you must make out of certain retirement accounts once you reach a certain age.

The SECURE Act increased the age at which people must take required minimum distributions to 72 for those people who turn 70.5 after April 1, 2020. Required minimum distributions are considered income tax and the IRS will tax them at ordinary rates. However, you can reduce your tax consequences from your required minimum distributions with qualified charitable donations.

Give Appreciated Stock

Another way to engage in charitable giving is to donate stock to the charity or charities of your choice. If you own publicly traded stock and your stock has appreciated in value over the years, giving away the appreciated stock may help you from a tax standpoint. You will earn a charitable income tax deduction in the amount of the fair market value of the stock when you gifted it to the charity of your choice. In doing so, you will also be able to avoid capital gains taxes on the amount of appreciation. Thus, giving a charity the appreciated stock directly rather than selling the stock can be beneficial for your overall tax strategy.

Give Through a Charitable Trust

Creating a revocable living trust is another way to incorporate charitable giving into your estate plan. There are many benefits to giving charitable gifts through a revocable trust. First, the beneficiary will not have to go through the probate process in order to access the funds. Instead, the assets will automatically transfer to the charity of your choice upon your passing. You also have a greater amount of control when it comes to giving charitable gifts through a charitable trust.

Second, as the grantor or creator of the trust, you are able to identify the specific beneficiary who will receive money from the trust. You can also state the purpose for which you would like the funds to be used. There are many different types of trusts, and a lawyer will be able to advise you as to the best option in your case. Some of our clients create a trust that will continue to earn interest over time, providing charities with income for generations.

Name a Charity as a Beneficiary in Your Will

If you have created, or plan to create a will-based estate plan, you can donate to charities through your will. It is important to remember to name the charity of your choice accurately in your will or they may have difficulty accessing the funds. As with a trust, you can set forth the purpose for which the money needs to be used in your will. One downside to giving gifts to charities through your will is that the beneficiary will need to go through the probate process, which can be time-consuming and costly.

Create a Charitable Remainder Trust (CRT)

Another strategy is to name a charitable remainder trust as the beneficiary of your IRA. In a charitable remainder trust, a person you select will receive annual payments from the trust over time. After their interest in the trust terminates, the remaining assets owned by the trust will be distributed to the charity or charities of your choosing.

Contact a Charlotte Estate Planning Lawyer Today

Whether you needed to create an estate plan or you would like to update your plan to include charitable giving, the lawyers at Arnold & Smith, PLLC are here to help. Contact us today to schedule your initial consultation at our Charlotte, Mooresville, or Monroe offices.