Leaving Estate Assets to Charity Often Makes Financial Sense

While you cannot take money with you when it is all said and done, have you considered giving it away to help others? Whether that means giving to family members or a charity is up to an estate-holder, but giving to both could make financial sense.

Few things can be as rewarding as charitable giving. Social welfare organizations that serve poor, hungry and abused Americans are among the most prominent. Giving to a charity that helps people with challenges that you may have suffered, like breast cancer or a family tragedy, can be profoundly satisfying. Supporting religious institutions and universities may also be worthy causes.

There are also benefits involved that could favor your heirs, rather than simply divert assets away from them that they would otherwise receive. For starters, charitable gifts are generally tax-deductible. If your estate may be in danger of exceeding an estate tax exemption threshold, then giving a proportionate amount to a tax-exempt charity could save your loved ones a large tax bill.

Short of an estate tax risk, establishing a percentage of your assets for charitable giving, rather than a set dollar amount, could protect your beneficiaries from being crowded out if the future value of your estate declines. If you and your family have the means and desire to play an active role in philanthropy, you could also establish a private foundation.

Keep in mind that a charity can be the beneficiary of a revocable or irrevocable trust, and a charitable trust can provide benefits for your heirs and a favored organization. For example, if you have substantially appreciated assets, such as real estate or stocks, you can reduce capital gains tax on the assets by contributing them to a charitable trust.  

Specifically, a Charitable Remainder Trust may allow a family member or another beneficiary to receive trust distributions for a specified period of time while donating any remaining assets to a designated charity. Retirement accounts like 401ks and IRAs can be excellent candidates for charitable bequests because of their high appreciation, tax-deferred designs.

Please feel free to reach out to our office for help navigating these issues.