What is charitable planning?


For many people, fulfilling their philanthropic efforts through donating to charitable organizations is an integral part of their financial plans. While some individuals prefer to give during their lifetime, others leave money to their beloved charities as part of their estate plan. In some cases, individuals choose to do both. Whatever the case, when you consider making charitable gifts, it’s imperative to balance your desire to support the causes that matter to you with your other financial needs. Charitable planning has various benefits, including minimizing taxes, as gifts made to charities are exempt from gift tax. Giving gifts can be made in a variety of ways. That said, if you’re considering including charitable planning in your estate plan, it is in your best interest to contact a reliable Montgomery County Estate Planning Attorney who can help you choose a way to give that enables you to understand the tax implications of your decisions. 

What does charitable planning entail?

Charitable planning is a process that involves the development and implementation of strategies aimed at maximizing charitable gifting while minimizing tax implications. The objective is to devise a plan for donating assets that not only achieve your philanthropic goals but also maximize the tax benefits associated with these donations. Charitable gifting, on the other hand, refers to the actual act of donating funds to nonprofit organizations or private business interests that are dedicated to philanthropic causes, including charities, foundations, religious organizations, and other entities.

Charitable gifting is an essential part of estate planning as it offers several benefits to individuals, including allowing them to support causes that are meaningful to them while also providing tax benefits. Essentially, charitable gifting strategies can result in deductions on federal income tax returns or reductions in capital gains tax, which can ultimately minimize estate taxes. Individuals can choose to make charitable gifts in different forms, including cash donations, real estate, gifts of securities, stocks or other assets, bequests in wills or trusts, and even, in some cases, donations of time and service. However, it’s vital to ensure that the organization you intend on including in your estate plan is an officially registered 501(c)(3) entity, as these are the only charitable organizations that will qualify for a tax deduction.

How can I benefit from this type of gifting when estate planning?

If you plan to donate a total amount that exceeds the standard deduction, it could be beneficial to itemize your donations. This way, you can maximize the tax benefits of your charitable contributions. When you donate your property to a qualified organization, you can deduct the total fair market value of that property for itemized deductions, with the deduction amount being limited to a percentage of your adjusted gross income. If the numbers don’t add up to itemize deductions, you should consider bunching your charitable gifts. This technique allows you to itemize deductions in a single tax year. When this is done correctly, you can reduce taxable income.

Charitable remainder trusts (CRT) are another option to donate money and receive income tax relief. This allows donors to transfer assets into a trust that pays the donor an income stream for a specific duration, and the remainder of the interest is distributed to charities. Furthermore, individuals can minimize taxes through charitable gifting by using a donor-advised fund, which allows them to make contributions and receive tax deductions by investing.

For more information regarding charitable planning, contact a determined Montgomery County estate planning attorney. At JD Katz, we are prepared to help you maximize your tax benefits through charitable planning.