Charitable giving is one tool people have at their disposal to support them in achieving their estate planning goals. People who have assets valued near or over the estate tax exemption can utilize charitable gifts as a way to minimize the risk of their estate owing taxes once they pass. However, charitable giving isn’t only used to decrease taxes. Many people name a charitable organization in their estate plan, even when their assets are well below $12 million.
Why would I give to a charity if it doesn’t help my taxes?
There are many reasons why people incorporate gifts to a charity or charitable organization in their estate planning. Here is a quick list of examples of gifts clients have made and why:
- A hospital where a loved one received care for a terminal illness.
- A rescue organization that works with a specific breed of dog that they love.
- A non-profit that worked on a cause close to their heart.
- A church where the person was a lifelong member.
- A favorite museum.
- A medical research organization.
- A shelter for domestic violence victims.
- An LGBTQIA+ teen support organization.
How do I know if an organization is “charitable”?
In order for your gift to qualify, the recipient must be a “charitable organization.” Determining whether or not the recipient qualifies isn’t always obvious when looking from the outside in. I would suggest that you start by researching the organization, and specifically ask “is Name of Organization a charitable organization?” on your online search. Charitable organizations often rely heavily on donations received through estate planning and therefore strive to make that information readily available to anyone who might be interested in making such a gift. This is not information that will be hidden or hard to access.
The definition of “charitable organization” is found in the Internal Revenue Code section 170(c). Essentially, to qualify as a charitable organization and donation, any one of the following criteria must be met:
- It is a donation to a governmental entity in the USA and the gift is made exclusively for Public Purposes
- It is a donation made to a private entity created or organized in the United States and operates exclusively to:
- Educational purposes
- Foster national or international amateur sports competition
- Prevent cruelty to children or animals
As you can see, the criteria above really creates quite an extensive list of options.
How can I make a gift to a charitable organization?
You have many options available to you when considering how to make a charitable gift. Two of the simplest and most common ways to leave charitable gifts are:
1) Name the organization directly in your estate plan.
Through your trust or will, you can identify the organization to which you want to leave a gift. This gift can be accomplished by identifying a specific asset or sum of money you would like to leave. Oftentimes people will name a charity as a contingent beneficiary. This means that in the event no other named beneficiaries are able to inherit, then a charity will receive the funds, rather than the state.
2) Name a beneficiary for a specific asset.
Many assets have Beneficiary Designations. These are assets such as retirement accounts, life insurance policies, annuities, or Pay on Death cash accounts. You can identify a charity as a beneficiary here. One benefit of identifying a charity this way is that the administration of the gift is handled by the financial institution, not your trustee. This means that once the company receives notice of your death, they handle delivery of the funds directly. You do not need to worry about the gift being delayed during the administration process, or a beneficiary contesting the gift.
If charitable giving is something important to you, your estate plan can help you continue your gift-giving even after your death. Leaving a charitable donation is a powerful way to help your legacy live on. If you have questions about including a charitable gift in your estate plan, please contact us today.