How can I leave money to charity in my estate plan?

On Behalf of | Jul 19, 2021 | Estate Planning

Charitable giving can be an important part of an estate plan for those who are charitably inclined. Depending on the extent of these gifts and the financial circumstances of the donor, there are various ways to leave assets to charity. Additionally, the donor should give consideration as to which charities the donor wants to provide for.

Lifetime charitable gifts and charitable trusts

Some donors may want to make gifts to charities during their lifetime as part of their charitable giving. This can be as simple as making a one-time donation or annual donations to a charity of choice, which does not require any formal planning. For ongoing gifts, a donor could consider setting up a donor advised fund, which is an agreement between the donor and the charity that the donations be used for certain charitable purposes. Additionally, some donors may benefit from creating a charitable trust.

A charitable trust is normally established as a charitable remainder trust (“CRT”) or a charitable lead trust (“CLT”). These are trusts that donors create while they are alive and to which they make a gift of assets. A CRT is a trust that allows the donor to receive an income stream for a term of years or until the donor dies, with the charity receiving whatever assets remain in the trust afterward. A CLT is a trust that allows the donor to provide for charity initially for a term of years or over the life of the donor, while the remaining assets revert to non-charitable beneficiaries afterward.

Charitable trusts are irrevocable trusts that are designed to make charitable gifts but also allow the donor to benefit from reducing income taxes and estate taxes. These trusts do have specific rules and requirements that must be followed. These trusts may make more sense for donors who have considerable wealth but are also charitably inclined.

Charitable gifts upon death

Many donors may be more inclined to make charitable gifts upon their death, as opposed to or in addition to while they are living. These types of gifts are most commonly set forth in the donor’s will or trust. In those documents, the donor can designate a sum of money or a percentage of the estate to go to charities of their choice. They can leave the terms of the gift general or can specify the gifts be used for certain charitable purposes.

Selecting the charity

 It is important for donors to consider not only how to make charitable gifts, but also to which charities they want to benefit. This might include leaving gifts to one charity to several charities. Some donors may want to specifically list out charities while others may be satisfied in making a gift to a donor advised fund or to a charitable foundation or organization that can benefit various initiatives and charities.

In deciding which charities to provide for, it may be important to consider the location and outreach of the charities. Some donors may want to benefit local charities and initiatives while others may be more inclined to benefit charities with a national or global outreach.

Making gifts to charities is an important part of estate planning for many people. It is worth considering the different ways to make these gifts so that the donor’s intent is met and so that the donor can maximize potential tax savings.