Charitable Giving and Estate Planning

April 24, 2019

Charitable giving is a part of many estate plans, whether for philanthropic or tax-reducing purposes. Your giving strategy may vary depending on your financial circumstances and the tax benefits that come with each option for donation.

It is therefore important to consider which assets you will donate, and how they will be left when incorporating charitable giving into your estate plan.

Choose Your Charity

A charitable giving strategy includes choosing which charity or charities you would like to receive your donation. Perhaps there is a certain charity that you have donated to in the past, or one that is meaningful to you and your family.

Once you have chosen your charity, it is time to decide which assets you will donate.

Decide Which Assets to Donate

A cash donation is not the only way to give to charities. You may also be able to donate other financial assets, such as Individual Retirement Accounts (IRAs), and reap the benefits of significant tax savings.

IRAs are generally counted for federal estate tax, federal income tax, and state tax purposes; by designating your chosen charity as a beneficiary of your retirement accounts, you may be able to minimize or avoid these taxes.

Types of Charitable Trusts

Charitable trusts are commonly used options for charitable contributions due to their flexibility and tax benefits. The two main types of charitable trusts are:

Charitable Remainder Trust (CRT)

There are two beneficiaries in a CRT – a charitable and a noncharitable beneficiary. In a CRT, the donor or the noncharitable beneficiary receives annual payments from the trust for the term of the trust. The charitable beneficiary will receive the remainder, either in a fixed dollar amount or percentage of the CRT’s annual fair market value.

Some benefits of this type of trust are that it is tax-exempt, it provides the noncharitable beneficiary with a stream of income for a certain amount of time, and contributions are not counted as part of the donor’s taxable estate.

Charitable Lead Trust (CLT)

This type of trust is also a split interest trust between a charitable and noncharitable beneficiary, but unlike the CRT it is not tax-exempt. However, in a CLT payments from the trust are made to the charitable beneficiary (not the noncharitable beneficiary as in a CRT) for a set period of time. This allows the donor to give annual donations to their charity of choice while retaining control of their trust assets.

Once that time period has expired, the balance of the trust will be paid to the charitable beneficiary.

Benefits of this type of trust include a reduced amount of assets subject to estate tax and reduced tax liability for charities upon inheritance.

Delaware County Wills and Estates Lawyers at Eckell Sparks Help Clients Incorporate Charitable Giving into Their Estate Plans

If you are interested in creating a charitable trust, contact a Delaware County wills and estates lawyer at Eckell, Sparks, Levy, Auerbach, Monte, Sloane, Matthews & Auslander, P.C. Our lawyers have over 50 years of experience helping clients with all types of estate planning matters. From our offices in Media and West Chester, Pennsylvania, we represent clients throughout the state, including those in Delaware County, Chester County, and Montgomery County. For a free consultation, please complete our online contact form or call us at 610-565-3701.