Clients who are updating their estate plans tend to have a variety of concerns. Many want to ensure that their assets transfer to the intended beneficiaries. Others are more concerned with protecting assets from the estate tax. Still others focus on keeping assets from a potential beneficiary (i.e. a soon-to-be-ex-spouse). Very seldom is a chief concern whether or not to leave assets to charity.
Charitable giving, however, can be a very effective way to transfer assets while still giving back to the community. In some instances, charitable giving can result in a larger gift to heirs than simply leaving assets to them outright.
A primary benefit of charitable giving is the tax benefit. Similar to the more familiar income tax provisions, the internal revenue code provides an estate tax deduction for income taxes. Unlike the income tax rules, how- ever, there is no limit to the amount that can be deducted on an estate tax return. Outright gifts to qualified charitable organizations reduce a decedent’s estate and lessen the estate tax.
In some instances, an even more attractive option is to create a Charitable Remainder Trust. With this type of trust, the client (or the client’s heirs) can continue to receive the benefit of the trust assets during their lifetime. For example, the trust can be funded as an annuity that pays out throughout the lifetime (or a set number of years) of the beneficiary. Upon the death of the beneficiary, the remaining assets in the trust will be given to the charity of the client’s choice.
Charitable Trusts provide a clear estate tax benefit. Even a future gift to charity can be used as an estate tax deduction. Depending on the type of asset used to fund the trust, however, Charitable Trusts may also have oth- er tax benefits. For example, using an IRA to fund the trust may reduce the income tax liability resulting from that IRA. Similarly, funding the trust with high growth assets (certain stocks, LLC interests, etc.) can lessen the capital gains liability.
In the right situation, with proper investment and enough tax savings, a Charitable Trust can result in a larger gift to a client’s heirs than would be possible without the charitable gift. Your SGR&K estate plan- ning attorney can work with your financial advisor to determine if a charitable gift is appropriate for your estate plan. Call for more information today.