For most individuals and families, charitable giving is more than a financial transaction. Integrating charitable gifts into your estate plan can help support the causes that matter most to you while providing significant tax advantages and peace of mind. Whether you want to endow a scholarship, support medical research, or sustain a local nonprofit, the right estate planning strategies can help you structure your giving for maximum impact.

In this blog, we’ll explore the most effective ways to include charitable bequests in your estate plan, explain how these structures can reduce tax burdens, and offer tips for drafting a plan that ensures your philanthropic goals are honored.

Why Include Charitable Giving in Your Estate Plan?

Charitable giving through an estate plan offers a powerful combination of personal fulfillment and financial benefit. Here’s why:

• Legacy Creation: Your bequest can fund missions aligned with your values long after your lifetime.
• Tax Efficiency: Charitable contributions can significantly reduce your estate’s exposure to federal estate tax and, in some cases, generate income tax savings.
• Customizable Options: From simple outright gifts to sophisticated trust instruments, you can tailor your giving to suit your financial situation, family needs, and philanthropic goals.

Common Structures for Charitable Bequests

When incorporating a charitable gift into your estate plan, there are several common formats you can use, depending on your goals and the complexity of your estate.

1. Outright Bequests

This is the simplest and most common approach: you name a charity as a beneficiary of a specific dollar amount, a particular asset (such as stock or real estate), or a piece of personal property in your will or trust.

Best for: Donors seeking simplicity and clarity.

2. Residuary Bequests

You may choose to give a charity the “residue” of your estate: what remains after all specific bequests, debts, and taxes have been paid.

Why it matters: It ensures that your loved ones are provided for first, while still supporting the causes you care about with any remaining assets.

3. Percentage Bequests

This type of bequest assigns a set percentage of your estate to one or more charitable organizations. It adjusts proportionally if the size of your estate changes, which can be especially useful in fluctuating markets.

4. Contingent Bequests

Contingent bequests specify that a charity will receive assets only under certain conditions, such as if your primary beneficiaries do not survive you.

Flexibility tip: The inclusion of contingent bequests acts as a backup plan that ensures your estate continues to serve a meaningful purpose no matter what the future holds.

Charitable Trusts and Advanced Giving Strategies

For larger estates or those seeking both income and philanthropic impact, trust-based strategies can offer enhanced flexibility and tax efficiency.

Charitable Remainder Trusts (CRTs)

A CRT allows you (or another beneficiary) to receive income for life or for a specified term of years, after which the remaining assets go to charity. This structure can provide an immediate income tax deduction and potentially avoid capital gains tax on appreciated assets transferred into the trust.

Charitable Lead Trusts (CLTs)

A CLT provides income to a charity for a set number of years, with the remaining assets passing to your heirs. This strategy is especially appealing if you wish to reduce estate and gift taxes on appreciating assets.

Donor-Advised Funds (DAFs)

A DAF is a charitable investment account that you fund during your lifetime or through your estate. While you retain advisory privileges over how the funds are distributed, the assets ultimately support charitable causes. DAFs are often used as a flexible alternative to creating a private foundation.

Tax Implications: Making Every Dollar Count

Charitable giving doesn’t just benefit the organizations you support; it can also provide considerable tax relief when structured properly.

• Estate Tax Deduction: Gifts to qualified charities are fully deductible for estate tax purposes, reducing the taxable value of your estate.
• Income Tax Planning: Certain lifetime gifts and charitable trusts allow you to claim income tax deductions during your lifetime while setting aside funds for future charitable use.
• Retirement Account Bequests: Designating a charity as the beneficiary of an IRA or other tax-deferred retirement account avoids the income tax that would otherwise be owed by heirs. Since charities pay no income tax, the full value goes toward your intended cause.
• Avoiding Capital Gains: Gifting appreciated securities instead of selling them can allow you to bypass capital gains tax entirely while still receiving a full charitable deduction.

Practical Tips for Structuring Your Charitable Giving

To ensure your charitable legacy is legally sound and tax-efficient, follow these tips:

• Be Precise: Clearly name the organization(s), using full legal names and tax identification numbers where possible.
• Stay Current: Update your estate documents regularly to reflect changes in your philanthropic interests or the legal status of nonprofits.
• Integrate Your Planning: Work with your estate planning attorney, tax advisor, and financial planner to coordinate your charitable strategies across all parts of your estate.
• Document Intent: Consider writing a letter of intent or gift agreement to clarify how the gift should be used.

Give With Intention

Charitable estate planning allows you to translate your values into meaningful, lasting support for the causes that matter to you. At the same time, it offers tax advantages that can benefit both your estate and your heirs. With the right planning, you can craft a legacy that makes a difference far beyond your lifetime.

Whether you’re just getting started or ready to formalize your intentions, please contact Robert Wolfson at (703) 284-7293 or rwolfson@beankinney.com.

This article is for informational purposes only and does not contain or convey legal advice. Consult a lawyer. Any views or opinions expressed herein are those of the authors and are not necessarily the views of any client.