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Maximizing Your Legacy: Strategic Ways to Include Charities in Your Estate Plan

Leaving a legacy through charitable bequests is not just for the wealthy. Sharon Waters highlighted in her AARP article that anyone can make a lasting impact by including charities in their estate plan. This article explores various strategies to do so effectively.

Understanding the Impact of Charitable Bequests

Charitable bequests are instructions to allocate assets to charitable organizations within a will or estate plan. These bequests can create a lasting impact, supporting causes and organizations that matter to you long after you’re gone. Even modest bequests can significantly contribute to a charity’s mission.

Assessing Your Options for Charitable Giving

There are several ways to include charities in your estate plan:

  • Wills and Trusts: Directly listing charities in your will or trust.
  • Beneficiary Designations: Naming charities as beneficiaries on retirement accounts or life insurance policies.
  • Charitable Remainder Trusts: Providing income to beneficiaries for a period before transferring the remainder to a charity.
  • Charitable Gift Annuities: A charity pays a fixed annuity to the donor or another beneficiary in exchange for a gift.

Tax Implications and Benefits

Charitable bequests can offer tax benefits. Donations of cash, property, or stocks can potentially reduce estate taxes. It’s essential to consult with a financial advisor to understand the specific tax implications and benefits based on your estate’s size and the nature of your bequest.

Choosing the Right Charities

Selecting charities that align with your values is crucial—research potential charities for their effectiveness and legitimacy. Tools like Charity Navigator or GuideStar can provide valuable insights into a charity’s operations and impact.

The Role of Legal and Financial Advisors

Professional advisors play a critical role in estate planning. They can help you navigate complex tax laws and honor your charitable wishes. Regular reviews of your estate plan with these professionals are essential to keep it aligned with your goals.

Donor-Advised Funds: A Flexible Option

Donor-advised funds (DAFs) offer flexibility. You can contribute to the fund and receive a tax deduction in the same year, then recommend grants to charities over time. This option is ideal for those who wish to maintain flexibility in their charitable giving.

Making Your Charitable Intentions Clear

Ensure that your estate documents clearly state your charitable intentions. Specify the charities by their full legal names and consider using percentages rather than fixed amounts to account for value fluctuations in your estate.

The Personal Side of Charitable Bequests

Including a charitable bequest in your estate plan can be deeply fulfilling. It’s an opportunity to support causes you care about and leave a positive mark on the world. Consider the broader impact of your giving beyond the financial aspects.

Conclusion

Incorporating charities into your estate plan requires thoughtful consideration and planning. Consult with legal and financial professionals to ensure that your wishes are effectively executed. Remember, the act of giving, as emphasized by Sharon Waters, is significant regardless of the amount. Your charitable bequest can make a meaningful difference.

Additional Resources

For further reading and research on estate planning and charitable giving, consider the following resources:

Contact estate planning attorneys or financial advisors specializing in charitable giving for professional advice.

Should You Gift Kids Inheritance Now, or After You’ve Passed?

This is a genuine dilemma facing millions of parents and grandparents as they prepare to pass an enormous amount of wealth—$73 trillion—to the next generation. There are pros and cons to both approaches, according to the article, “Give the Kids Their Inheritance Now or Make Them Wait? 3 Things to Keep in Mind,” from Barron’s.

Giving too much too early could put parents in an economic bind in their later years. Therefore, this needs to be considered in light of today’s longer life spans. However, if you can afford to make a generous gift and your children could use the money now for a good purpose, it’s hard to justify making them wait.

How much to give is as critical as when to make the gift. The predominant concern is if you give your children too much, they won’t be motivated to earn their own wealth, or other family members will resent the gift. Estate planning attorneys and financial advisors routinely speak with families about these issues. These conversations always consider the values they want to instill in their children.

In some cases, parental support can help a child while working at an entry-level (i.e., low paying) job in their dream career. Covering the cost of rent for a few years can offer young adults a support net until they achieve financial stability.

This is very different than paying the expenses of a young adult with no career goal whose primary focus is a robust social life.

Anyone can make a yearly gift to any other person of up to $17,000 tax-free, or $34,000 per couple, but there are ways to make gifts without triggering gift taxes. Direct tuition payments to schools are tax-free. Unlike putting money into a 529 account, there is no limit to how much can be paid directly to a college or university. Parents and grandparents could also help with a downpayment on a child’s home without paying gift taxes.

Gifts don’t have to be large to have an impact. Some parents and grandparents give their children or grandchildren a small amount to start saving for retirement. A gift of a few thousand dollars during their 20s can grow into a nice sum over many decades. If the recipient has earned income, you can contribute to their IRA or Roth IRA accounts.

If assets are limited, consider giving personal possessions, such as jewelry or family heirlooms, to younger generations. You’ll get to see them enjoy their gifts, without putting your own financial situation at risk.

Whenever the decision is made to make these gifts, families should talk about their values and intentions around money.

If there are concerns about children losing an incentive to work because of the family’s wealth, a spendthrift trust might pass wealth along while controlling its distribution.

Remember that today’s generous federal estate tax rules are set to expire in 2026. Currently, individuals can gift up to about $13 million ($26 million for couples) tax-free in their estate plans. If the exemptions expire, this amount will be cut by approximately half.

Reference: Barron’s (Nov. 4, 2023) “Give the Kids Their Inheritance Now or Make Them Wait? 3 Things to Keep in Mind”

What Is a Holistic Estate Plan?

Estate planning is more than a tax strategy. It’s about creating a legacy and protecting your family for the short and long term, explains the article “Create A Holistic Estate Plan Now For Bigger Payoffs In The Future” from Forbes. The process begins with as much disclosure as possible. That means talking with your estate planning attorney about the challenges your family faces, as well as the assets to be left for loved ones.

One change to the tax code can disrupt decades of careful planning and leave people scrambling to protect loved ones. Market tumult can require assets to be sold to meet cash flow needs. Charitable contributions may also need to be reviewed and possibly changed, if the family’s asset level changes.

There are three aspects to consider when creating an estate plan: a lifetime spending strategy, a charitable legacy and bequests. All of these are impacted by taxes and need to be reviewed as a whole.

Lifetime spending strategy. These questions are centered on your goals and plans. Where do you want to live during retirement and how do you wish to live, travel and entertain? Will you stay in place and focus on charitable organizations, or travel throughout the year? It’s good to set a budget and stress-test it to see what different outcomes may arise.

A family that owns businesses or large real estate holdings may benefit from strategies, like family limited partnerships. A sale of the business to an outsider or a family member could create many different options, and all should be considered.

Charitable gift planning. Estate planning offers a way to clarify charitable giving goals and create a road map for how gifting can be transformed into a legacy. A well-planned charitable gift strategy can also minimize estate taxes and maximize the future of the gift, for both the family and the charities you favor.

A Charitable Remainder Trust is used to provide an income stream during your lifetime and reach gifting goals at the same time. One way to accomplish this is to transfer an asset, like highly appreciated stocks or bonds, into an irrevocable trust, thereby removing the asset from your taxable estate. The trustee may then sell the asset at market value and reinvest, creating a lifelong income stream for you or a beneficiary.

Leaving assets, not estate tax bills, for heirs. Families who own multiple properties in their own names or in a single LLC can lead to a lot of administrative headaches when the owners die. One simple fix is to place each property into a separate LLC, which increases the availability of strategic tax savings.

Another way to minimize estate taxes is through the use of life insurance. This is a strategy to do while you are still relatively healthy, as it becomes increasing difficult to obtain once you turn 60 or 70.

All of these strategies take knowledge and time to set up, so creating an estate plan and working through the many different strategies is best done with an experienced estate planning attorney and before any trigger events occur.

Reference: Forbes (April 6, 2021) “Create A Holistic Estate Plan Now For Bigger Payoffs In The Future”

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