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Including Charitable Giving in Your Estate Plan

attorney meeting with elder couple about adding charity donation to estate plan

Including charitable giving in your estate plan is a great way to give back to the community and carry on your legacy. If you are interested in including charitable giving in your estate plan, you should talk to a qualified Naples attorney. There are various ways to include charitable giving in your estate plan, and an attorney can help you find the best fit. They can help you maximize your gift while minimizing income or estate taxes.

Below are five ways to structure charitable giving into your Naples estate plan

1. Bequest in a Will. Leaving a bequest in your will is a simple and direct way to gift property to a charity. To do this, you should include a provision in your will stating the amount of money or specific piece of property you want to give, the name of the charity and its federal tax identification number, and the particular purpose for which you want the charity to use the funds. You can specify that the gift should be used for the charity’s general-purpose as it sees fit. The desired use must be within the charity’s organizational powers, or the charity will be forced to refuse the gift.

A significant benefit of including a gift to charity in your will is that it decreases your estate tax liability. If you are gifting real estate or other specific property, the charity can sell the asset without paying capital gains taxes.

2. Charitable IRA Rollover. Individuals over 70 ½ can donate up to $100,000 per year to charities directly from their individual retirement account (IRA). This donation is called a Qualified Charitable Distribution (QCD). A QCD counts towards the required minimum distributions (RMD) that the account holder must take. Under the recently passed SECURE Act, after an account holder turns 72, they must begin to take RMDs. RMDs are considered taxable income and taxed at ordinary income rates.

Charitable IRA rollovers can be a good strategy to lower taxable income for individuals who do not need to take the RMD for living expenses.

3. Gift Appreciated Stock. Another method of charitable giving is to gift publicly traded stock that has appreciated in value. If you or your heirs sold the stock, you would have to pay capital gains. However, when you donate the appreciated stock to charity, you receive a charitable income tax deduction equal to the stock’s fair market value at the time of the gift and avoid capital gain taxes. The charity can sell the stock without paying capital gains taxes because charities are tax exempt.

4. Name a Charity as the Beneficiary of Your Retirement Account. You can name a charity as the beneficiary of all or a percentage of your non-Roth retirement account (IRA, 401(k), 403(b), etc.). To do this, you must complete the institution’s beneficiary designation form.

After your death, the charity of your choosing will receive the property without having to pay income taxes on the withdraw. In contrast, beneficiaries who are not charities always have to pay income tax at ordinary rates on all distributions they receive from a retirement account. Under the SECURE Act, most IRA beneficiaries must withdraw all funds from the retirement account within ten years of the account holder’s death. This new rule limits your heirs’ ability to stretch out distributions and continue investments with deferred taxes.

Before the passage of the SECURE Act, all beneficiaries could stretch distributions over their life expectancy. Therefore, naming a charity as the beneficiary of a retirement account may be a good option if you have other assets that you can leave to your heirs where they will not have to pay income tax when they receive it. Additionally, any amounts left to charity qualify as an estate tax charitable deduction and have the effect of lowering your federal estate tax liability.

5. Gift Life Insurance. A final option is to designate one or more charities as the beneficiary of your life insurance policy. One benefit of this strategy is that it makes the payment of your annual premium tax-deductible as a charitable contribution.

Call A Naples Estate Planning Lawyer

If you have questions about including charitable giving in your estate plan, you should contact an experienced Naples attorney. Attorney James R. Nici has over 25 years of legal experience and can create an estate plan that fits your needs. Contact our offices today at (239) 449-6150 or use our web form to set up a free consultation.

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