Giving to charity is always great- it is a low-hassle way of making a difference and getting those warm and fuzzy feelings that come from doing a good deed. As it turns out, giving to charity can also be a smart financial move and a good element of a well-rounded estate plan. Giving to your alma mater, your religious institution, or any NGO or charity can do more than allow you to give back to society. Federal regulations that making charitable giving tax-free create enticing incentives to give money now and to include it in your estate plan.
So, how does one go about donating to charity in a financially savvy way? There are a number of ways to go about it; the simplest option is to make an outright gift. Outright gifts mean that the donor (or his or her estate) gets a tax deduction. Lifetime cash gifts also have the added bonus of removing the asset from an estate, which can lower estate taxes. Lifetime gifts of real estate can be additionally effective since you can avoid capital gains taxes on the land, An outright gift to be donated after death can be easily incorporated into a will or trust.
Charitable remainder trusts (CRT's) are another tool to incorporate charitable giving into an estate plan. It has all of the tax benefits of an outright gift, but also provides an income stream for a defined period of time. The way it works is that you put money in a tax-exempt (and irrevocable) trust, that disperses income for a specified period of time, and then donates the remainder of the trust to a previously designated charity. This can be a great way to lower taxes while creating a reliable income stream. A charitable lead trust is effectively the opposite of a charitable remainder trust, it gives a steady income stream to charity for a set period of time, and then the remainder goes to the donor’s heirs, without paying any estate tax. However, for this kind of trust, a discounted gift tax will be applicable, making it possibly less cost-effective.
Giving to charity can do more than provide an altruistic benefit, giving to charity can actually help reduce the amount paid in taxes both during life and after. If you have a cause or organization you are passionate about, odds are you can find a way to make donation part of a smart estate plan.
If you live in Philadelphia, Montgomery, or Delaware counties and want to discuss how to incorporate charitable giving into your estate plan, please contact us.