Part 3: Achieving Your Charitable Giving Goals

Key Takeaways:

• Testamentary gifts to charity are those gifts incorporated in your estate planning documents that distribute assets to charitable vehicles upon your death.
• You may make testamentary gifts to public charities, donor advised funds, private foundations and charitable split-interest trusts.
• The first step in the process is speaking to your advisors who will guide you toward achieving your short and long-term charitable giving objectives.

Not only do post-death charitable contributions permit you to reduce or even eliminate estate taxes some charitable vehicles permit you to establish a legacy of charitable giving for your family.

Charitable giving is often guided by a desire to support a specific charitable cause or organization, and that support is often provided in the form of a direct cash gift. However, there are a variety of charitable vehicles available to support the causes and organizations most important to you, which may also achieve tax, estate and legacy planning objectives. Broader wealth planning goals such as retirement, cash flow and legacy planning may also be achieved with the right combination of assets and charitable giving strategies.

Why Make Testamentary Charitable Gifts and What Are the Tax Benefits?

A testamentary charitable gift is a contribution to charity that is incorporated in your estate planning that distributes assets to charitable vehicles upon your death. Unlike the income tax charitable deduction, the estate tax deduction is unlimited for qualified charitable contributions. Not only do post-death charitable contributions permit you to reduce — or even eliminate estate taxes — some charitable vehicles permit you to establish a legacy of charitable giving for your family. All of the charitable vehicles available for lifetime contributions are also available for testamentary charitable giving.

• Testamentary Gift to Public Charities: Any assets that are included in the decedent’s gross estate may be directed to a public charity. Any amounts contributed to charity from your gross estate will generate an estate tax charitable deduction. In effect, any amounts of cash or value of assets contributed to charity will reduce your taxable estate to the extent of any assets contributed to charity. At many public charities, they may employ a director of planned giving. Their job duties include providing direction regarding how to incorporate a testamentary gift into your estate planning documents.
• Testamentary Gift to Donor Advised Funds: Any testamentary gifts to donor advised funds will provide the same estate tax charitable deduction as a gift to a public charity. Gifts to a DAF may possibly allow your family members to develop a legacy of charitable giving by permitting your family members to direct distributions from the DAF to the charitable beneficiaries selected by your family.
• Testamentary Gift to Private Foundations: In contrast to lifetime gifts to private foundations, there is no distinction between the estate tax charitable deduction allowed for gifts to public charities and private foundations. Testamentary gifts to private foundations will reduce your taxable estate to the extent of fair market value of the assets contributed to the private foundation.
• Testamentary Gift to Charitable Split-Interest Trusts: The estate tax charitable deduction for charitable lead trusts and charitable reminder trusts is determined in the same manner that the income tax charitable deduction is calculated. That is, the value of the portion deemed to pass to charity as determined at formation of the charitable trust will reduce your taxable estate by the value of the charitable portion. Testamentary charitable trusts may achieve the same benefits that these trusts accomplish during life. They provide a benefit to charity, mitigate estate taxes and pass assets to your family in a tax efficient manner.
  • Testamentary Charitable Lead Trust: The income interest is paid to the charity during the term of the trust, and the assets remaining in trust at termination will be distributed to family members designated by you. The higher the payout rate to charity from the trust, the greater the estate tax deduction.
  • Testamentary Charitable Remainder Trust: The income interest is paid to family members designated by you in the trust. The lower the payout rate to your family members, the greater the estate tax deduction for the remainder interest that will pass to the charity designated in the CRT.                

Charitable giving may be accomplished during your life and after your death in a variety of ways. Thoughtful analysis and planning supported by your advisors presents opportunities to achieve multiple personal wealth and legacy planning goals while also supporting your favored charitable organizations or causes. The most effective and efficient charitable giving involves a process of identifying the best assets, charitable vehicles, tax-efficient strategies for the assets you own and identifying the legacy of charitable giving you wish to cultivate in your family. The first step in the process is speaking to your advisors who will guide you toward achieving your short and long-term charitable giving objectives.