Many people have charities or non-profit organizations that they truly believe in and want to assist. There are over one million non-profit organizations in the United States alone, each formed to help with a specific cause1. For our clients, long-term philanthropic planning helps to not only make an impact for the causes that mean the most to them, but also creates a long-term plan that maximizes their charitable contributions long into the future.
Donations of Appreciated Investments
If you own assets or investments that have appreciated in value over time, you will likely owe capital gains taxes if you choose to sell them. However, you can donate these assets to the charity of your choice as part of your philanthropic planning.
When the charity sells the assets, it will pay no capital gains taxes and can use the money to support the organization. Charities are tax-exempt and are not required to pay capital gains taxes on assets that they sell.
As a bonus, you’ll be able to take a charitable income tax deduction equal to the full fair market value of the asset or investment at the time that it was donated, provided they have been held longer than 12 months. You will also owe no capital gains taxes on the investment. It’s a win-win, allowing you to give more to the charity of your choice while potentially reducing the amount of your tax bill.
Including the Charity as a Beneficiary in Your Estate Plan
When you pass on, your assets will be distributed amongst the beneficiaries in your will or estate plan. You can include the charitable organization you would like to support through philanthropic planning as one of your beneficiaries.
The organization can receive specific assets that you designate for it or a percentage or dollar amount of the total overall value of your estate.
Understand that estate plans and wills are not automatic. Naming a charitable organization as a beneficiary in your estate plan doesn’t ensure the organization will receive it. You’ll need to work with a qualified attorney who can properly set up your estate plan to ensure that the organization is identified as a beneficiary and document what they are to receive when you pass on.
Adding the Organization as a Beneficiary to Life Insurance or Retirement Accounts
When you decide to purchase life insurance or open a retirement account, you are required to list a beneficiary. This beneficiary will inherit the balance of your retirement account or your life insurance policy proceeds when you pass on.
If you’d like some (or all) of your life insurance or retirement to pass on to the charity of your choice, you can list them as a beneficiary.
You can list multiple beneficiaries on a life insurance or retirement account. When you do so, you’ll indicate the percentage or dollar amount that you want each beneficiary to receive upon your death. This designation is a great way to support a charitable organization through philanthropic planning when its cause is important to you.
Creating a Charitable Trust
Another way to ensure that you support the organization close to you is through the creation of a charitable trust. There are two main types of charitable trusts. One is the charitable remainder trust, and the other is a charitable lead trust.
The charitable remainder trust allows you to keep the income from specific assets for a designated time. Once that time is over, the assets are given to the charitable organization of your choice. This approach allows you to keep a stream of income while you need it and let it go to the charity when you no longer need it.
A charitable lead trust gives the income from specific assets to the charity for a certain amount of time. For example, you may decide to give a charity an income stream from an investment in the trust for a designated period of time. At the end of the period, the assets return to you and may be given to other beneficiaries, such as family members.
Final Thoughts on Philanthropic Planning
Deciding to support a charity throughout your lifetime and upon your passing is a great way to leave a legacy that will be appreciated and can leave a legacy for you and your family long into the future.
With so many charitable organizations to choose from, it is easy to find one that aligns with your personal beliefs. When you want to ensure that you maximize your gifting strategy, connect with our team to gain access to the resources that will help you make an even bigger impact.
Financial Professionals do not provide tax or legal advice and this should not be considered as such. Please consult a tax or legal professional for advice regarding your specific situation.
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