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Building a Legacy: Charitable Planning at Death

by | Feb 22, 2024 | Estate Planning

In an era where the spirit of philanthropy is rising, charitable giving at death has become a powerful tool for individuals to leave a lasting impact. The numbers speak for themselves, with over $35 billion donated in 2019 alone. As we navigate the delicate realm of estate planning, it’s crucial to explore the realm of charitable planning at death.

Understanding Charitable Planning at Death
Charitable planning is a deliberate and thoughtful approach to giving intricately woven into one’s estate plans. Beyond the financial aspects, it’s about crafting a legacy that reflects personal values and makes a tangible difference in the world. By incorporating charitable giving into end-of-life plans, individuals can leave a legacy that extends far beyond their own lifetime, fostering positive change for future generations.
Charitable planning encompasses strategies from traditional wills and trusts to forward-thinking beneficiary designations. These avenues empower individuals to tailor their approach to align with their values and goals. Lately, these have been popular topics:

  • Individuals over 70½ who have an IRA can make direct payments to charity up to $100,000 a year. If the payment is the first money out of the IRA in that year, it counts as a required minimum distribution.
  • These same individuals may now fund a charitable gift annuity or charitable remainder trust up to $50,000 directly from an IRA.

But many, for various reasons, do not want to commit wealth they fear they will need during their lifetimes. For them, a simple bequest at their deaths by way of a will, revocable trust, or beneficiary designation may fulfill their philanthropic goals. We have provided some real-world examples.

You can add provisions that specify a purpose for which a gift can be used.

  • For example, I leave $50,000 to [Charity], or its legal successor, to endow research in [specific purpose].

“Endow” means that the fund left is distributable over time. Typically, 5% of the fund is used annually.

Will provisions may also refer to a fund already established during the donor’s lifetime.

  • For example, I leave $50,000 to [Charity], or its legal successor, to be added to the John and Mary Doe Fund.

Of course, gifts may also be left for general purposes.

  • For example, I leave $50,000 to [Charity], or its legal successor, for general purposes.

More sophisticated opportunities are also available. Before 2020, IRA owners could leave their IRAs to a non-charitable beneficiary and have it “stretch” over that beneficiary’s lifetime. To accelerate income taxation on what are viewed as retirement vehicles, the Secure Act required most IRAs payable to a beneficiary other than the owner’s spouse to be distributed within ten years after the owner’s death.

For several decades, it has been possible to leave an IRA at death to a charitable remainder trust. Under that technique, an amount is payable to one or more non-charitable beneficiaries for a term of years – or for life – with the remainder to charity at the end of the term. The distributions and income tax on the distributions flow through to the non-charitable beneficiary just as under the old “stretch” IRA. So, the planning technique allows an IRA owner to mimic the old stretch rules. It is not an exact fit, but the idea is comparable. The designation of a charity at the end of the non-charitable term can endow a specific purpose or add to an existing fund.

A donor facing a federal estate tax and wishing to reduce it with charitable gifts may want to establish a charitable lead trust in their wills. Under that arrangement, amounts are paid to a charity for a fixed term of years after the donor’s death. After the term of years ends, the remainder passes to one or more non-charitable beneficiaries. The donor receives an estate tax deduction equal to the present value of charitable interest. If the return exceeds the discount rate used to calculate the deduction, there is an estate tax savings for these non-charitable beneficiaries.

Factors to Consider
We urge you to consider factors like mission, financial health, and transparency when choosing your charitable organization(s). A legacy goes beyond assets, reflecting the values that define your life. Take action to align your financial legacy with personal values and embark on a transformative journey that transcends generations.

For insights into strategic approaches, such as donating appreciated assets or establishing charitable trusts, contact Roy Krall at 216-621-7860.

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