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How can you support charities in your estate plan?

On Behalf of | Jan 31, 2024 | Estate Planning

For residents of California looking to support charities through their estate plan, there are several effective strategies to consider. With charitable giving in mind, estate planning can fulfill philanthropic goals and provide tax benefits.

Understanding the various charitable giving options available and how they can be integrated into an estate plan is a good place to start.

General bequests

One standard method is through a bequest in a will or trust. This involves designating a specific dollar amount, a percentage of the estate or particular assets to be given to a chosen charity after the individual’s passing. Bequests are flexible and can be amended as circumstances change. They also allow the estate to benefit from a charitable tax deduction, which can reduce the estate’s taxable value.

Charitable remainder trusts

A charitable remainder trust (CRT) allows an individual to place assets in a trust, receive income from the trust for a specified period and then have the remainder go to a designated charity. CRTs can offer significant tax benefits, including an immediate income tax deduction and potentially avoiding capital gains tax.

Charitable lead trusts

Charitable lead trusts (CLTs) work in the opposite manner of CRTs. In a CLT, the charity receives income from the trust for a specified period, after which the remaining assets are passed on to heirs. This can be a valuable tool for individuals who want to support a charity while preserving assets for their beneficiaries, potentially at a reduced gift or estate tax cost.

Retirement account designations

For those with retirement accounts, naming a charity as a beneficiary of an IRA or 401(k) can be a tax-efficient way to make charitable donations. Since charities are tax-exempt entities, they can receive the total amount of the account, bypassing the income taxes that an individual beneficiary would owe.

Donor-advised funds

Donor-advised funds (DAFs) allow donors to make a charitable contribution, receive an immediate tax deduction, and then recommend grants from the fund over time to their preferred charities. DAFs can be funded with various types of assets and are an excellent way to create a legacy of giving.

Life insurance proceeds

By naming a charity as a life insurance policy beneficiary, an individual can provide a substantial gift to the charity upon their death. Donors often use this method to make a significant contribution without impacting their current financial situation.

Ultimately, charitable giving is only one component of an estate plan. Working with a legal representative enables adults to determine the most effective manner for meeting their estate planning goals in both specific and broader ways alike.