If you have a cause or organization that is important to you, make sure you mention this to your estate planning lawyer during your first meeting. It may be a win/win to leave a charitable bequest in your will or trust to a non-profit.
There are several estate planning tools that can be used, including:
1. Will Bequests
Leaving an outright gift to a nonprofit or charitable organization as a bequest in a will is one of the simpler estate planning techniques, and may be appropriate for modest gifts.
2. Charitable Remainder Trusts
Normally a charitable remainder trust is used for highly appreciated assets, such as stocks, as it can eliminate immediate recognition of capital gains on the sale of those assets. The assets are placed in a trust to earn annual income for you during your lifetime, and you can access the income as needed. When you die, the remaining funds are paid to the charity. You also qualify for an income tax deduction when the trust is created. Finally, you will have removed the assets transferred into the charitable trust from your taxable estate at death.
3. Charitable Gift Annuities
Gift annuities are typically backed by the charities themselves and they allow you to make a tax-deductible contribution. In exchange, you receive regular payments for the rest of your life. Ideally, about half of the initial gift remains with the charity when you die.
But the economic downturn could cause some charities to have trouble meeting their annuity obligations. Some have seen the reserve funds they use to ensure payouts shrink, prompting them to turn to insurance companies to back up their obligations. In a worst case scenario, if a charity goes bankrupt, creditors ahead of you in line could have a claim on assets intended to fund your payments. Since the gift is irrevocable, you cannot get your money back if the charity runs into trouble.
If leaving a legacy of giving is one of your estate planning goals, work with an estate planning attorney to make sure it is a truly a win/win situation.
- Charitable Planning in Times of Crisis - November 1, 2021
- Advantages of Using a “Grantor Trust” in Planning - October 5, 2021
- Dangers of Do-It-Yourself Estate Planning - August 1, 2021
