Charitable giving with an estate plan

3 Tips for Including a Charity in Your Estate Plan

Are you in the process of developing your legacy plan? Do you want to leave assets to a favorite charity? While you may wish to leave a substantial portion of your estate to loved ones, it’s common for individuals to also include charities among their heirs.

The simplest way to leave money to a charity may be to just include the organization in your will. However, that’s not always the most effective strategy. The assets could get tied up in probate, which is the legal process for settling one’s estate. Probate can be costly and time-consuming, so the charity may not benefit as much as you would like.

Fortunately, there are other strategies at your disposal. Some of these strategies could make sense for you, depending on your needs and goals. Your charitable strategy should be developed in a way that helps both you and your targeted charity meet your mutual objectives.

Consider using these three charitable giving approaches:

1.) Consider a charitable trust.

One effective strategy is to use a trust to distribute your assets to your charity of choice. You could use a charitable remainder trust (CRT), as your gifting vehicle. You basically re-title the gifted assets so they are owned by the CRT. Upon your death, the assets are distributed to charity according to the instructions in the trust document.

There are a couple of interesting aspects to a CRT. One is that you can use your CRT to generate income. For instance, you could have assets that generate investment income, such as interest or dividends. You could take that income as annual distributions from the trust and use the funds to support your retirement.

CRTs also receive tax-favored treatment. You may be able to take advantage of a tax deduction when you gift the funds into the trust for the charity’s benefit. The assets may also grow tax-free while they are held within the trust.

2.) Donate your life insurance policy.

Another option is to leave money to a charity via life insurance. For instance, you could name a charity as a beneficiary on your life insurance policy. Then, when you pass away, the charity receives some or all of the benefit amount.

You could also donate your policy to the charity. Under this strategy, the charity becomes the new policy owner and beneficiary. It has the right to manage the cash value and take distributions. If you continue to pay the premiums, you may be able to deduct that amount on your taxes each year.

3.) Gift assets to the charity before you pass away.

Finally, you can simply gift assets to the charity while you’re alive. There are a couple of benefits to this approach. One is that you may receive a tax deduction for your gifted amount. Another, perhaps more important, benefit is that you get to see your charitable donation put to good use while you’re alive.

However, be sure that you don’t need the money before you gift assets. It’s possible that you may face costly emergencies later in life, such as medical treatment or even long-term care. Make sure you keep enough in reserve to cover those potential expenses.

Ready to develop your charitable gifting strategy? Let’s talk about it! Contact us today to set up a free initial strategy session, and we can help you analyze your needs and implement a plan.



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