“It is better to give than to receive,” is an old expression that can also apply to estate planning. Not only can it be personally rewarding to give to those in need, but, in many respects, charitable giving can make good financial sense. Have you ever considered how leaving money to a charity can benefit your estate?
People often give to social welfare nonprofits, religious institutions, universities, and other tax-exempt organizations during their lifetimes, and the result can be two-fold: personal satisfaction and tax reduction. Similarly, dedicating a portion of your estate to a charitable cause can generally reduce the taxable value of your estate while helping people.
In other words, charitable estate giving could help advance breast cancer research, fund scholarships for disadvantaged students, or benefit any number of worthy causes while saving your heirs a sizable tax bill if you may be at risk of exceeding an estate tax exemption limit.
Additionally, gifting highly appreciated assets, like real estate or stocks, to a charitable organization can benefit your heirs by reducing the taxable value of your estate and sparing them large capital gains liabilities once the appreciated assets are redeemed. Charitable organizations can be better equipped to deal with appreciated assets due to favorable tax treatment.
Another way charitable giving can benefit your estate may be through the use of creative trusts. A Charitable Remainder Trust, for example, could make a charity the beneficiary of the trust and pay income distributions to family members or other selected individuals. Payments would occur for a specified period of time or even the lifetime of the recipient. Any remaining funds would then be donated to the charity.
Highly appreciated, tax-deferred retirement accounts like 401ks and IRAs can be excellent asset choices for Charitable Remainder Trusts. The combination could circumvent new congressional retirement reforms contained in the SECURE Act of 2019. Accordingly, estate beneficiaries who inherit tax-qualified retirement accounts must now liquidate them within 10 years or face a stiff penalty. A Charitable Remainder Trust may allow for retirement account distributions to be “stretched” beyond the 10-year limit.
Estate giving does not have to conflict with family inheritances. A well-crafted plan could create a mutually beneficial arrangement. Contact our office for help navigating these issues.