There are many reasons we give money to charity. Honoring a loved one, advancing a worthy cause, and a genuine interest in helping others are a few of the motivations that help make the world a better place. Charitable giving, however, can also come with tax benefits and leaving money to a charity in your estate plan can have the added benefit of helping your heirs.
While most give to charity out of a sincere desire to do good, there is nothing wrong with simultaneously considering the government tax benefits philanthropists receive. Broadly, charitable giving reduces or eliminates asset tax liabilities and lowers the taxable value of your estate.
Giving money to charity in your will is a great way to leave a positive legacy for the future. It can also reduce the amount of tax paid by the rest of your estate so your family can get the most out of their inheritance.
There are two ways to leave money to a charity in your will:
- Specify a named charity or charities that will benefit
- Let the trustees of your will decide.
If you choose specific charities to receive donations, it is best to include their registered charity number(s) to avoid confusion. Over time, organizations might change their name, but they don’t change their registered charity number.
If you decide to let the trustees choose the charities, it is essential to leave a clear record of your wishes to help them decide.
Charitable gifts can be in the form of:
- A cash sum.
- A particular property or asset.
- A share, or the whole, of your residuary estate (what’s left after other specified gifts, costs, and tax).
There are several ways you can accomplish this:
Give appreciated assets. Assets that have appreciated in value since their purchase, like homes, real estate, or stock, can be excellent charitable donations. Not only can the gifts reduce the taxable value of your estate by the appreciated value of the assets at the time they are donated, but your heirs may avoid capital gains taxes once the assets are redeemed.
Will or revocable trust. Consider leaving a bequest to a specific charity in either your will or trust. Make sure to state the amount and the purpose for the funds. Establishing a gift percentage of your estate, rather than a dollar amount, can also protect your heirs.
Charitable remainder trust. A charitable remainder trust involves naming a charity the beneficiary of the trust and paying designated family members distributions for a specified period, or even their lifetimes. Any remaining funds would then be donated to the charity.
Retirement accounts. Tax-qualified retirement accounts like IRAs and 401ks can be directly gifted to a charity, and the benefits can be similar to donating appreciated estate assets. These retirement accounts are allowed to grow tax-free during working years but are subject to hefty tax liabilities when funds are withdrawn. Retirement accounts can also fund charitable remainder trusts, which could circumvent new restrictive retirement reforms contained in the SECURE Act of 2019.
These are complex estate planning issues, but ones that, when properly resolved, can bring many benefits to you and your loved ones. We’re not experts in taxes and estate planning, but we can share the basics. We encourage you to meet with an attorney who specializes in wills and estates to learn more about how charitable giving can be a part of your legacy.
Leaving the Food Bank a Legacy Gift
Planned, legacy gifts to the Food Bank for Larimer County ensure your commitment to fighting hunger lives on and future generations will receive the nutrition they need to survive and thrive.
The Food Bank for Larimer County welcomes gifts of stock, annuities, and proceeds from estates. Planned gifts allow you to leave a long-lasting legacy of support for the people we serve, while providing valuable tax benefits.
