Including charitable giving in your estate plan is a meaningful way to leave a lasting legacy while also maximizing tax benefits. Whether you want to support a cause close to your heart or reduce your taxable estate, there are several strategies to consider. Understanding your options for charitable giving can help you create a plan that aligns with your values and financial goals.
Why Include Charitable Giving in Your Estate Plan?
Estate planning is about more than just distributing assets to heirs—it’s also an opportunity to support charities that matter to you. Thoughtful charitable giving can:
- Reduce estate and income taxes
- Provide financial support to organizations you care about
- Establish a legacy of philanthropy for future generations
By choosing the right strategies, you can ensure that your charitable gifts make the greatest impact.
Best Ways to Include Charity in Your Estate Plan
1. Donate Retirement Assets to Charity
One of the most tax-efficient ways to give to charity is through your Individual Retirement Account (IRA) or 401(k). Traditional IRAs and 401(k)s are tax-deferred, meaning withdrawals are subject to income tax. However, charities are tax-exempt organizations, so they receive the full value of your donation.
White Bear Lake residents can designate a charity as a full or partial beneficiary of your IRA or 401(k). This ensures the charity receives the funds tax-free, maximizing the impact of your donation. Read more in our article The Costly Mistake of Naming Your Estate as Your IRA Beneficiary
2. Make a Qualified Charitable Distribution (QCD)
If you are 70½ or older, you can donate directly from your IRA to a charity through a Qualified Charitable Distribution (QCD). A QCD allows you to transfer up to $100,000 per year directly to a charity without counting it as taxable income. This strategy is especially useful for satisfying Required Minimum Distributions (RMDs) while also supporting a nonprofit organization.
3. Gift Appreciated Assets to Avoid Capital Gains Tax
If you own stocks, real estate, or other appreciated assets, donating them directly to charity can be a smart move. Normally, selling these assets would trigger capital gains tax, but if they are donated instead, the charity can sell them tax-free.
For example, if you bought stock for $1,000 and it’s now worth $10,000, donating it directly to a charity means they receive the full value. If you were to sell the stock first, you might pay thousands in capital gains taxes, leaving less to give.
4. Use Charitable Trusts for Ongoing Support
There are two primary types of charitable trusts that can be incorporated into an estate plan:
- Charitable Remainder Trusts (CRTs): These provide income to you or your heirs for a set period, with the remainder going to charity.
- Charitable Lead Trusts (CLTs): These provide income to a charity for a set period, with the remaining assets passing to your heirs.
Both options allow for tax-efficient giving while also benefiting your loved ones.
5. Take Advantage of Minnesota’s Estate Tax Rules
Minnesota has an estate tax with an exemption of $3 million (as of 2024). If your estate exceeds this amount, charitable giving can help reduce your taxable estate. Gifts made more than three years before your passing are generally not included in your taxable estate. Maximizing the benefits of White Bear Lake charitable planning helps ensure that more of your assets go to the causes you support instead of estate taxes.
Key Takeaways
- Retirement accounts are one of the most tax-efficient ways to give to charity.
- Qualified Charitable Distributions (QCDs) can help meet Required Minimum Distributions while avoiding income tax.
- Appreciated assets can be donated to avoid capital gains tax.
- Charitable trusts allow for structured giving while also benefiting heirs.
- Minnesota’s estate tax laws make early charitable giving a valuable strategy.
Planning your charitable gifts wisely ensures that your generosity has the greatest possible impact. If you’re considering charitable giving in White Bear Lake, MN, an estate planning attorney at Stone Arch Law Office can help you explore the best options for your financial and philanthropic goals. Book a call with our team to get started.
Reference: Wealth Management (Nov. 6, 2024) “Unlocking the Power of Complex Assets and Legacy Gifts in Philanthropy”
