When individuals want to leave a portion of their estate to a charity, there are several options available to help them accomplish their philanthropic goals. These options provide flexibility in terms of choosing the type of charitable gift, the timing of the gift, and the control individuals may wish to retain over their assets during their lifetime. Let’s explore some of the most common avenues for charitable giving in estate planning.
Bequests: One of the simplest ways to leave a charitable gift is through a bequest in a will or trust. This involves naming a specific amount of money, property, or a percentage of the estate to be transferred to a designated charity upon the individual’s death. Bequests can be unrestricted, allowing the charity to use the gift as it sees fit, or restricted to support a specific program or purpose.
Charitable Trusts: Charitable trusts offer individuals more control over their assets and can provide income to beneficiaries during their lifetime. There are two main types of charitable trusts: charitable remainder trusts CRTs and charitable lead trusts CLTs. CRTs allow individuals to receive income from the trust for a specified period, with the remaining assets passing to the charity upon their death. CLTs, on the other hand, provide income to the charity for a set period, with the remaining assets going to designated beneficiaries.
Donor-Advised Funds DAFs: DAFs are charitable giving accounts administered by public charities or financial institutions. Individuals can contribute assets to the fund, receive an immediate tax deduction, and then recommend grants to their preferred charities over time. DAFs provide a flexible and convenient way to support multiple charitable organizations while enjoying the benefits of tax deductions.
Charitable Gift Annuities CGAs: CGAs allow individuals to make a charitable gift while receiving a fixed income stream for life. Individuals donate cash or property to a charity, and in return, they receive a guaranteed income for themselves or a designated beneficiary. Upon the individual’s passing, the remaining assets in the CGA are used by the charity.
Retirement Accounts: Individuals can designate a charity as a beneficiary of their retirement accounts, such as an IRA or 401k. This can be accomplished by completing a beneficiary designation form provided by the account custodian. By doing so, individuals can reduce their taxable estate while supporting a charitable cause.
Life Insurance: Another option is to name a charity as a beneficiary of a life insurance policy. This can be a whole life, term life, or universal life insurance policy. By designating a charity as a beneficiary, individuals can provide substantial support to the organization without diminishing their assets during their lifetime.
It is important for individuals to consult with disputing a will attorney or financial advisor to determine the most suitable option based on their specific financial situation and philanthropic objectives. Additionally, tax considerations, state laws, and the individual’s overall estate plan should be taken into account when making decisions regarding charitable giving in estate planning.