Leaving a Legacy to Charity

Last updated on September 1, 2022
PAUL TURNERPAUL TURNER

There are many ways to leave a legacy. There’s real estate, life insurance policies, and retirement assets. But what if you want to give back to the community? What if you want to support an organization that has been of value to you? What if you want to help people who need it most? Leaving a legacy to charity is a great way to do just that!

Charitable Bequests

What are charitable bequests?

Charitable bequests are gifts of property that you leave to a charity in your will. A will is the legal document that determines how your estate will be distributed after your death. When writing a will, it’s important to consult with an attorney and/or financial advisor who can help you make sure everything is done properly.

Why should I consider making a charitable bequest?

Making charitable bequests allows donors to have more control over their assets than simply giving away money or other property during their life does. This ensures that the charity receives funding upon one’s passing instead of being dependent on future gifts from the donor during their lifetime. Additionally, this form of donation allows for smaller donations but still has a significant impact on charities’ overall financial stability and sustainability.

Another reason to consider making a charitable bequest is if you have more than enough to provide for loved ones and you want to do something meaningful with the remainder. Some donors choose to leave a certain amount to their children either because the children themselves have their finances covered sufficiently, or on the other hand, they do not want their children to be dependent upon their inheritance. Therefore, they choose to set aside a portion of their property to be given to charity.

Sometimes, certain charitable organizations have played an important role in your life or the life of a loved one and you want to support them and give back to them as a token of your appreciation. This is another common reason people choose a charitable bequest.

Person writing check donation to charity

Residuary Bequest

A residuary bequest is a gift that goes to your chosen charity after everything else has been distributed as per your will.

For example, if you have made other gifts and given up some of your property to loved ones, there may be some funds left over for charity. You can give this amount in one go or set up a fund for donations from the residuary estate.

Charitable Gift Annuity

Leaving a legacy to charity can also be done by creating a charitable gift annuity. This is a contract between you and the charity that specifies how much money you want to donate and how long you want to receive payments from them.

The charity will give you back a fixed income for life in exchange for your gift. The amount of money that they provide depends on many factors: current interest rates, how long they expect you will live (and therefore how long it takes for them to recoup their investment), and the age at which beneficiaries are eligible for distributions under state law.

Charity heart with money jar of coins

Charitable Lead Trust

Charitable lead trusts allow you to make a gift to charity while still retaining the right to receive income from the trust. The trust must be irrevocable and the charity must be the sole beneficiary of the trust. The amount of income you receive (the “lead”) is determined by dividing your initial investment into five equal installments over five years. These payments are taxable as ordinary income, but they are reduced by a tax deduction for each payment made during its term.

Charitable Remainder Trust

A charitable remainder trust (CRT) is a trust that pays income to the donor or other beneficiaries for a set number of years or for life.

When the trust ends, its principal is distributed to charity. The CRT can pay either a fixed amount each year or one dollar amount at the end of the term, and it can either be irrevocable (meaning you cannot change who gets your money) or revocable (meaning you can change who gets your money).

Real Estate

Donations do not always have to be monetary.

  • You can donate real estate in your will.
  • You can donate real estate through a living trust.
  • You can also donate real estate through a charitable remainder trust, which allows you to take income from the property while still leaving it to charity.

Donor-Advised Fund

Donor-advised funds are charitable investment accounts that are maintained by nonprofit organizations that regularly handle such funds. The main benefit of a donor-advised fund is that it allows you to have your assets professionally managed at a much lower cost than private foundations while still having them distributed to charities that are important to you.

Life Insurance

A charitable remainder trust can be funded with life insurance. The donor transfers the policy into a trust account that they control and names beneficiaries. Then they receive payments from the trust for a specified period of time (typically 5-10 years) before it becomes payable to the charity. This allows you to get some tax benefits while still making your charitable gift in your lifetime since the payout comes after your death.

Retirement Plan Beneficiary Designations

It’s important to understand the different types of beneficiary designations. Beneficiary designations are used for retirement plans, life insurance policies, and other assets like bank accounts and brokerage accounts. The same way you can name a person as a beneficiary, you can also list a registered charity as a beneficiary or a contingent beneficiary in your will for any type of account.

Benefits of Donating to Charity in your Will

There are many short-term and long-term benefits of donating to charity in your will. Here are just a few:

Charitable Deduction

An income tax deduction is available for the value of your gift. The United States has a progressive estate tax system, meaning that the more you leave to your heirs after death, the higher your tax bill will be. If you donate some of your money before death to charity instead of leaving it to family members, however, you may be able to reduce or even eliminate those taxes altogether.

Appreciated Assets Exemption

Capital gains tax and income tax are not applicable on appreciated assets (an asset that has increased in value since you purchased them).

No Estate Tax

Estate taxes are avoided by transferring assets to a charity before passing away since there’s no need for an estate to be divided among beneficiaries after your death.

No Gift Tax

There’s no gift tax associated with giving appreciated assets to a charity, so the entire amount goes directly toward funding charitable causes rather than being siphoned off by Uncle Sam first!

Money saved from tax deductions on tax return

Avoid Probate

You can avoid probate. For example, when people die without a valid will at all (known as dying “intestate”), their assets get distributed according to state law rather than personal preference. If you want your money given away in accordance with your own wishes but don’t want other people getting involved in deciding how it should be spent after your death, consider leaving part or all of it directly through a charitable planned gift. This is instead of through a will where everyone has input into the decision-making process and thus could potentially change things based on their own agenda.

You Can Leave a Legacy

People who donate large sums during their lifetime often do so without realizing what impact this might have on their loved ones’ inheritance prospects. By donating through the estate planning process instead of living donation programs like Individual Retirement Accounts (IRAs)–or even just writing checks each month–you’ll ensure that no one misses out on anything important down the road due to any unexpected changes made by IRS laws. This way everything remains consistent throughout every financial decision made no matter how small or large.

Conclusion

There are many ways to leave a lasting legacy, and the one that is right for you depends on your situation. Either way, you will also leave your mark in this world that the next generation and all future generations can be proud of. If you have questions or want further information and professional advice about any of these tax effective options, please contact us. We’d love to help!

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