Have you considered that few things may be as rewarding as helping others? Millions of people give to worthy causes every year and the government provides tax benefits as an incentive. This dynamic, however, also applies to estate giving, and trusts offer certain advantages.
A charity can be the beneficiary of a revocable trust or irrevocable trust. The former can be altered or canceled depending on the trust grantor, while the latter cannot be modified, amended or terminated without the permission of the grantor’s named beneficiaries, which may even require a court process. In either case, the estate benefits can be similar to giving during one’s lifetime which include personal satisfaction and tax reduction.
Deciding to leave money to a cancer research foundation, a college scholarship fund, or a religious institution, for example, could engender a deep sense of satisfaction, and rightly so. It could also reduce the taxable value of your estate, which may be a significant benefit to your heirs. If your estate may be in danger of exceeding an estate tax exemption limit, then giving to a qualified charity could save your loved ones a sizable tax bill.
Gifting highly appreciated assets, like real estate or stocks, to a charitable organization can also benefit your heirs. Not only could it reduce the taxable estate value, but capital gains taxes attached to the appreciated assets could be avoided once they are redeemed. Retirement accounts, like IRAs and 401k’s, may also be strong candidates for charitable bequests because of their tax-deferred nature. They may be allowed to grow tax-free over time but are taxed when the account funds are withdrawn during traditional retirement-age years. Due to the appreciation involved, retirement accounts can be among the highest taxed assets in modest-sized estates.
A Charitable Remainder Trust may also be a solution. This type of trust requires a charity to be the trust remainder beneficiary, and the trust pays income distributions to selected beneficiaries, who can be family members. The distributions can occur for a specified period of time or even the lifetime of the recipient. Any remaining funds would then be donated to the designated charity. Charitable Remainder Trusts are also able to circumvent new restrictive retirement account reforms contained in the SECURE Act of 2019.
For more help on how charitable giving can benefit your estate plan, please reach out to our office to schedule a meeting.