How to Make Charitable Giving Part of Your Estate Plan

What do you want your legacy to be? That’s one of the key questions involved in estate planning. Your legacy is the impact you leave on the world, and it can live on long after you’re gone. By including charitable giving in your estate plan, you can make a lasting impact by supporting your favorite causes in ways that may not be feasible today. In addition, making donations in your will can reduce inheritance taxes, helping your assets accomplish more. 

However, charitable giving can be confusing, especially if you want to minimize taxes. Let’s break down how it works, why it’s so beneficial, and your options for giving. 

What Constitutes Charitable Giving?

While you can use your will to give assets to any person or organization you’d like, only gifts made to certain groups qualify as charitable donations, according to the IRS. These groups include:

  • Registered religious organizations like churches, mosques, and synagogues
  • Registered nonprofits dedicated to religious, educational, scientific, artistic, or similar purposes
  • States, counties, municipalities, and other government organizations
  • Veterans’ organizations
  • Fraternal societies
  • Volunteer fire companies
  • Nonprofit cemeteries

Additionally, these donations typically cannot be restricted specifically to benefit the decedent or their descendants. For example, a donation to a cemetery cannot be made to maintain a specific grave but rather to the cemetery as a whole. Similarly, gifts to government agencies only count as donations if they are for public use. 

However, donations may include other restrictions or requirements. You may state that funds must be used partly for a public scholarship or that a property you donate must be named after your family. Just note that if the recipient doesn’t agree to those terms, the donation may be refused, and the assets returned to your estate. 

Benefits of Adding Charity to Your Estate Plan

With all these restrictions, why is charitable giving so valuable? There are three core reasons to include donations in your estate plan:

  • Supporting Beloved Causes: Many people with high net worths must balance their income needs with their philanthropic impulses while alive. However, you no longer have that concern in your estate plan. You can make significantly more substantial donations in your will than you may be willing to make right now to support your favorite causes without harming your financial security. 
  • Building Your Legacy: People may not know who Andrew Carnegie is today, but they know about Carnegie Hall and Carnegie libraries more than a hundred years after his death. You can use your estate plan to create a similarly lasting legacy for yourself and continue to do good in the world after you pass. 
  • Reducing Gift and Inheritance Taxes: Charitable donations are exempt from gift and inheritance taxes. In 2023, the total federal inheritance and gift tax exclusion is $12.92 million for individuals and $25.84 million for couples. Any value exceeding this amount is taxed at 40%. However, donations do not count toward this limit, allowing you to minimize the tax impact on your loved ones. 

Options for Charitable Giving During Estate Planning

There are many options for charitable donations within an estate plan. Depending on your circumstances and goals, you may consider:

  • Donating money directly to a charity: This is the simplest option and directly reduces your taxable estate, but you must include clear terms to maintain control over how your gift is used.
  • Donating property like real estate, vehicles, art, or other collections: This lets you remove difficult-to-value assets from your estate while ensuring they go somewhere they will be used.
  • Gifting appreciated stock: This can make a significantly larger financial impact than liquid assets because you avoid paying capital gains on the investment’s appreciation while transferring its current value to your chosen cause.
  • Establishing a charitable trust or community foundation: Trusts and foundations let you set explicit terms for how your assets should be used and help you make an impact for years or decades after you pass. However, it’s also significantly more work to set up and maintain. 

The best way to add charity to your estate plan depends on your goals. If you want to learn more about your options or create a plan that supports your beloved charities, get in touch with the experienced estate planning attorneys at The Dayton Law Firm P.C. We have decades of experience helping our California create lasting legacies through comprehensive wills, trusts, and foundations. With our estate planning and administration expertise, we can help you accomplish your goals, protect your assets, and leave a lasting impact on the world.