If a charitable cause is near to your heart, it may be likely that you will donate time and money during your lifetime. Giving while you are living also comes with the benefit of a charitable tax deduction. Although this may be what many people focus on when making donations, there are many other ways in which leaving money to a charity can benefit your estate? These include using a charitable remainder trust or charitable lead trust to benefit both the charity of your choice and your loved ones nominated as beneficiaries, having a flexible method of leaving money to a charity, and giving you the chance for recognition after you pass away. There are also tax deduction benefits to charitable bequests if your estate is above the limit for the federal estate tax exemption, but for most people, the other reasons are the ones you should focus on.
A charitable lead trust involves setting aside a sum of money into an irrevocable trust. During your lifetime, you can make payments to the charity of your choice. When you pass, the remainder of the assets in the trust will go to your beneficiaries. The trust itself is not tax-exempt. You will, however, eventually receive a charitable deduction from estate tax for the value of the interest paid to the charity.
A charitable remainder trust can provide a stream of income to you, or to another beneficiary, while you are living, and designates one or more charities to receive the remainder of the assets in the trust when you pass away. You can choose to receive a fixed amount of income from the trust, like you would from an annuity, and this is known as a Charitable Remainder Annuity Trust (CRAT). In the alternative, you can receive a percentage of the trust assets as calculated on an annual basis, which makes the trust a Charitable Remainder Unitrust. Whichever type you choose, you will receive a partial tax deduction that depends on the structure of the trust.
If you do not want to create a trust, you can simply include a paragraph in your will stating that you wish to leave money or property to the charity of your choice. You have several options, and the benefit of each of these can be flexibility. You can designate a specific sum of money or a certain account, like a retirement account or life insurance policy proceeds, to go to a charity. You could also choose to leave a percentage of your total estate, which means the eventual amount will toggle up and down based on the size of your estate. This may be helpful if you want to make sure each of your beneficiaries gets their fair share. You can change this provision in your will at any time to reflect new charities you may be involved with, or a substantial change in your estate.
Making a charitable bequest in your will can be a great way to honor a cause that meant a lot to you during your lifetime. To learn more on how to support your favorite causes through estate planning, please get in touch with our office by calling (202) 895-2799 to schedule an appointment.