We are often asked by clients, how they consider incorporating charitable gifting into their estate plans. There are several high-impact, low-cost charitable estate planning options that you can consider:
Bequests: A bequest is a provision in your will that directs a certain amount or percentage of your estate to a charitable organization. This is a simple and cost-effective way to support your favorite charities and causes. When thinking of bequests consider a percentage (i.e. 1%) of your assets, instead of a specific dollar amount. Percentages will scale with the estate, while specific dollar amounts don’t.
Charitable Gift Annuities: A charitable gift annuity is a contract between you and a charity. You make a donation to the charity, and in return, the charity pays you a fixed income for life. This is a great option if you want to support a charity and also receive a regular income. Many gift annuities pay between 7-10% per year, depending on the age of the donor.
Charitable Remainder Trusts: A charitable remainder trust is a tax-exempt irrevocable trust that allows you to receive income from the trust for a specified period or for the rest of your life. After your death, the remaining assets are distributed to a charitable organization of your choice.
Charitable Lead Trusts: A charitable lead trust is a trust that pays an annual amount to a charitable organization for a set number of years. After the set period, the remaining assets are distributed to your heirs or other beneficiaries.
Donor-Advised Funds: A donor-advised fund is a charitable giving account that you set up with a public charity. You can make contributions to the account and then recommend grants to the charities of your choice.
These options may vary in complexity and cost, but they all have the potential to make a significant impact on the charities and causes you care about while minimizing the impact on your own finances.
Thinking bigger? Consider these as even greater ways to benefit your favorite charity.
Life Insurance: If you have a life insurance policy, you can name a charity as a beneficiary, or even assign ownership of the policy to the charity. This can provide a significant donation to the charity without any impact on your current finances.
Retirement Accounts: You can name a charity as the beneficiary of your retirement accounts, such as 401(k) or IRA. This allows you to support a charity you care about while also avoiding potential taxes for your heirs.
Real Estate: Donating real estate, such as a vacation home, can be a great way to support a charity while also reducing your tax burden. You can donate the property outright or use a charitable remainder trust or charitable gift annuity to receive income from the property while also benefiting the charity.
Charitable Bargain Sale: If you want to sell property, such as a piece of art or collectibles, you can sell it to a charity for less than its appraised value. This allows you to receive a tax deduction for the charitable donation while also supporting the charity.
Overall, there are many options for high-impact, low-cost charitable estate planning that can make a significant difference for the causes you care about. It’s important to consult with a professional to ensure you choose the best option for your financial situation and charitable goals.
Charitable IRA Rollover: If you are old enough, you can make a tax-free distribution from your IRA directly to a qualified charitable organization. This distribution counts towards your required minimum distribution (RMD) and reduces your taxable income.
Charitable Lead Annuity Trusts: A charitable lead annuity trust is similar to a charitable lead trust, but instead of making annual payments, the trust pays a fixed amount to a charity each year. The remaining assets in the trust are then distributed to your heirs or other beneficiaries.
Charitable Bequests of Retirement Plans: You can also name a charity as the beneficiary of your retirement plan in your will. This is a simple and effective way to support a charity while also reducing potential taxes for your heirs.
Endowed Gifts: Endowed gifts are donations that are invested by a charity, and the income from the investment is used to support the charity’s mission in perpetuity. You can make an endowed gift to support a specific program or area of the charity’s work.
Charitable Remainder Unitrusts: A charitable remainder unitrust is similar to a charitable remainder annuity trust, but the income payments are based on a percentage of the trust’s value, which can increase or decrease depending on the performance of the trust’s investments.
Regardless of which vehicle you’ve decided on, rest assured that your generosity will be appreciated by the charity or charities of your choice!
Jeffrey D. Katz, Managing Partner