Charitable giving can play a significant role in your estate plan. Not only can philanthropy help you make a positive impact in your community, but it can also provide potential tax benefits and create a lasting legacy. Here are several ways you can incorporate charitable giving into your estate plan:
One of the most straightforward ways to make a charitable contribution is through a legacy gift in your will or trust. With a legacy gift, you designate a specific amount of money or a percentage of your estate that will be distributed to a charity upon your passing. By including a legacy gift in your estate plan, you can ensure that your values are reflected in your legacy and support causes that are important to you.
Establishing a private family foundation can be a meaningful way to engage your family in charitable giving while creating a lasting legacy. This option not only fosters a culture of giving within your family but also offers potential tax benefits and control over how the funds are distributed. There are many rules regarding the private foundations that must be strictly complied with to qualify as a tax-exempt organization and avoid penalties, including the requirement to distribute a minimum of 5% of the assets each year to qualifying charities. During your lifetime, contributions may be eligible for an income tax deduction (limited to 30% of your adjusted gross income), and at death, the entire amount left to a foundation may be eligible for an estate tax deduction.
A Donor Advised Fund is a hybrid between an outright gift to a charity and a private family foundation, making it a flexible giving option that allows you to make a charitable contribution, receive an immediate income tax deduction (subject to a 60% adjusted gross income limitation), and then decide later how to distribute those funds to various charities. A DAF has fewer administrative challenges compared to a private family foundation, more akin to opening a brokerage account. With a DAF, you choose a sponsoring organization and appoint one or more advisors (which may include yourself) to control the investment decisions and grants to charities. This option is especially appealing for individuals who want to involve their family in philanthropy or prefer to make strategic giving decisions over time.
A Charitable Remainder Trust (CRT) allows you to donate assets to a trust while retaining the right to receive income from those assets for a specified period (through an annuity or unitrust amount). After the initial term, the remaining assets in the trust are distributed to one or more charitable organizations. This strategy provides you with a partial charitable deduction when you establish the trust, depending on the value of the annuity, and it can be an effective way to defer income tax, as you only pay tax on the distributions (subject to certain rules regarding character and amount) – making it ideal when considering a large tax recognition event (such as, the sale of a business).
A Charitable Lead Trust (CLT) operates in the opposite manner of a CRT. In this arrangement, the trust provides income to one or more charitable organizations for a set period, after which the remaining assets go to your beneficiaries. This strategy can provide significant tax benefits while allowing you to support charitable causes during your lifetime.
While a Qualified Charitable Distribution is an income tax strategy only, and not an estate tax strategy, it’s effectiveness is worth mentioning. If you have an IRA and wish to make a charitable gift, you may instruct the IRA trustee to directly transfer up to $105,000 to a charitable organization in 2024. Instead of a standard charitable deduction, the full amount of the QCD is excluded from taxable income (without regard to any restrictions on itemized deductions). Additionally, the QCD will count toward any required minimum distributions (RMD) for the tax year in which it is made.
A QCD may be combined with a CRT or charitable gift annuity through a one-time contribution of up to $53,000. This is a lifetime limit, though, not an annual limit like standard QCDs.
Incorporating charitable giving into your estate plan not only allows you to make a positive impact but also helps create a lasting legacy that reflects your values. Whether you choose a simple bequest, a donor advised fund, or a more complex trust structure, there are various options available to support the causes that matter most to you. As you consider these charitable giving strategies, consulting with a knowledgeable estate planning attorney can help you navigate the process and make informed decisions tailored to your unique situation.
For additional information or questions regarding estate planning and charitable giving opportunities, we urge you to contact the author of this article or a representative of Jones Foster here.
Alex Parthemer, a member of Jones Foster’s Private Wealth, Wills, Trusts & Estates and Corporate & Tax teams, focuses his practice in the areas of estate planning, probate and trust administration, tax planning, business planning, and transactional corporate law.
Alex works with individual clients and families to develop personalized estate plans for asset protection and distribution while minimizing estate, gift, and generation-skipping transfer (GST) tax impact. He also has significant experience in preparing estate and gift tax returns, trust and estate income tax returns, as well as partnership income and individual income tax returns.
In addition, Alex’s background in complex tax planning uniquely positions him to represent business owners and family offices in a wide range of corporate matters, including corporation, LLC, and LP entity formation, mergers and acquisitions, buy-sell agreements, dissolutions, tax-free reorganizations, conversions, and annual filings. He has experience in guiding private foundations and public charities from the formation stage including the application for tax-exempt status (Form 1023) through name changes, director and/or trustee changes, administration issues, and related activities.
Alex is a member of The Florida Bar’s Tax Section and Real Property, Probate & Trust Law Section. He holds a Master of Laws degree (LL.M.) in Taxation from the Graduate Tax Program at the University of Florida.
Jones Foster is celebrating its Centennial year as a full-service commercial and private client law firm headquartered in West Palm Beach, Florida, with offices in Palm Beach and Jupiter. Tracing its roots back to 1924, the firm has served as an integral part of South Florida’s growth and prosperity. Through a relentless pursuit of excellence, Jones Foster delivers original legal solutions that help clients, colleagues, and the community to move forward. A significant number of attorneys have received the designation of Board-Certified Specialist by The Florida Bar in their specific practice area. The firm’s practice groups include Complex Litigation & Dispute Resolution; Corporate & Tax; Land Use & Governmental; Private Wealth, Wills, Trusts & Estates; Real Estate; and Trust & Estate Litigation. For more information, please visit www.jonesfoster.com.
The information provided in this article does not, and is not intended to, constitute legal advice; it is for general informational purposes only. No reader of this article should act or refrain from acting on the basis of this information without first seeking legal advice from counsel in the relevant jurisdiction to ensure the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation.
