What's the Best Way to Leave Money to Charity?

Leaving money to charity can be a meaningful way to support causes you care about while also providing potential tax benefits for your estate. Whether you want to donate during your lifetime or leave a charitable legacy after your passing, there are several strategic ways to structure your giving. The best method depends on your financial situation, goals, and the level of control you want over your contributions.

Charitable Trusts: A Powerful Giving Tool

One of the most effective ways to leave money to charity is through charitable trusts. These trusts allow you to support charitable organizations while also providing tax advantages and, in some cases, income for you or your beneficiaries.

Charitable Remainder Trusts (CRTs)

A Charitable Remainder Trust (CRT) is an irrevocable trust that allows you (or other named beneficiaries) to receive income for life or a set term, with the remaining assets eventually passing to one or more charitable organizations.

Benefits of a CRT:

Provides an immediate charitable income tax deduction.
Offers potential estate tax savings.
Allows you to receive a stream of income while supporting a cause you care about.
Defers capital gains taxes if funded with appreciated assets like stocks or real estate.

Charitable Lead Trusts (CLTs)

A Charitable Lead Trust (CLT) operates in the reverse of a CRT. Instead of beneficiaries receiving income, the charity receives income for a set period, after which the remaining assets pass to your heirs or other designated beneficiaries.

Benefits of a CLT:

Reduces estate and gift taxes when transferring wealth to heirs.
Provides a steady income stream to the chosen charity.
Can be structured to minimize tax liabilities for beneficiaries.

For those looking for a structured, tax-efficient way to give, charitable trusts are a highly effective option. Learn more about charitable trusts and how they might fit into your estate plan.

Direct Bequests in a Will or Trust

Another straightforward way to leave money to charity is by including a bequest in your will or living trust. You can specify:

A fixed dollar amount (e.g., "$50,000 to XYZ Charity").
A percentage of your estate (e.g., "10% of my estate to XYZ Charity").
A specific asset (e.g., "My stock in ABC Corporation to XYZ Charity").

Advantages of Charitable Bequests:

Simple and easy to include in an estate plan.
Allows you to retain full control of your assets during your lifetime.
Reduces estate taxes for your heirs.

If you're using a revocable trust for estate planning, you can easily amend the charitable provisions as your wishes change. Read more about revocable trusts and how they can provide flexibility in charitable giving.

Donor-Advised Funds (DAFs): A Flexible Philanthropic Option

A Donor-Advised Fund (DAF) is a charitable giving account that allows you to contribute assets, receive an immediate tax deduction, and recommend grants to charities over time. DAFs are a great choice for those who want flexibility in their charitable giving without the administrative burden of managing a private foundation.

Benefits of Donor-Advised Funds:

Immediate Tax Deduction: Contributions to a DAF qualify for a charitable tax deduction in the year they are made.
Tax-Free Growth: Funds grow tax-free, increasing the amount available for donation.
Flexible Grantmaking: You can distribute funds to multiple charities over time instead of making a one-time donation.
Privacy: Unlike private foundations, DAFs allow for anonymous giving.

If you want a streamlined way to give without the complexity of setting up a charitable trust, a DAF may be an ideal choice.

Gifting Appreciated Assets: Maximizing Tax Benefits

Donating appreciated assets such as stocks, real estate, or business interests can be a tax-efficient way to give to charity. Instead of selling the asset and paying capital gains tax, you can donate it directly to a charity or a charitable entity like a charitable remainder trust or DAF.

Advantages of Donating Appreciated Assets:

Avoid Capital Gains Tax: You don't pay capital gains tax on the appreciation.
Higher Charitable Deduction: You may deduct the full fair market value of the asset.
Increase the Impact of Your Gift: More funds go to charity instead of taxes.

This method is particularly useful for high-net-worth individuals or those with significant investment portfolios.

Qualified Charitable Distributions (QCDs) from IRAs

If you are age 70½ or older, you can donate up to $100,000 per year directly from your Individual Retirement Account (IRA) to a qualified charity through a Qualified Charitable Distribution (QCD).

Benefits of QCDs:

Satisfies Required Minimum Distributions (RMDs): Reduces taxable income by lowering your RMDs.
No Income Tax on the Distribution: Unlike standard IRA withdrawals, QCDs are not considered taxable income.
Supports Charity Immediately: Funds go directly to the charity without passing through your estate.

QCDs are a great strategy for retirees who want to support charities while reducing their taxable income.

Private Foundations: A Long-Term Charitable Legacy

For those with substantial wealth and a long-term philanthropic vision, a private foundation can be a powerful giving vehicle. A foundation allows you to establish a charitable entity, control how funds are distributed, and involve family members in your philanthropic efforts.

Key Benefits of a Private Foundation:

Control Over Grants and Investments: You decide how funds are invested and distributed.
Family Involvement: Foundations can serve as a legacy for future generations.
Tax Benefits: Contributions provide immediate tax deductions, and assets grow tax-free.

However, private foundations require ongoing administration and regulatory compliance, making them best suited for those committed to long-term charitable giving.

Choosing the Best Charitable Giving Strategy for You

The best way to leave money to charity depends on your financial situation, tax considerations, and personal goals. Here's a summary of the most common charitable giving methods:

Giving Strategy	Best For	Key Benefits
Charitable Remainder Trust (CRT)	Those needing income while supporting charity	Income stream, tax savings, defers capital gains
Charitable Lead Trust (CLT)	Wealth transfer with tax benefits	Reduces estate tax, provides charity income
Bequest in a Will or Trust	Simple estate planning option	Easy to set up, reduces estate taxes
Donor-Advised Fund (DAF)	Flexible giving with tax benefits	Immediate deduction, tax-free growth
Appreciated Asset Donation	Those with investments or real estate	Avoids capital gains, increases donation impact
Qualified Charitable Distribution (QCD)	Retirees with IRAs	Lowers taxable income, satisfies RMDs
Private Foundation	High-net-worth individuals, legacy planning	Full control, long-term impact

Each strategy offers unique benefits, and the best approach will depend on your specific financial and charitable goals.

Contact a Charitable Trust Attorney for Guidance

Navigating the complexities of charitable giving requires careful planning. Whether you're considering a charitable trust, donor-advised fund, or direct bequest, an experienced attorney can help you structure your gifts to maximize both charitable impact and tax efficiency.

At Heritage Law Office, we provide tailored estate planning strategies to help you achieve your philanthropic goals. Contact us today by calling 414-253-8500 or using our online form to schedule a consultation.

Frequently Asked Questions (FAQs)

1. What is the most tax-efficient way to leave money to charity?

The most tax-efficient ways to leave money to charity include charitable remainder trusts (CRTs), donor-advised funds (DAFs), and qualified charitable distributions (QCDs) from IRAs. These methods can reduce estate and income taxes while maximizing the impact of your donation.

2. Can I name a charity as a beneficiary in my will or trust?

Yes, you can name a charity as a beneficiary in your will or revocable trust. You can leave a specific amount, a percentage of your estate, or even certain assets, such as real estate or stock, to your chosen charitable organization.

3. How does a charitable remainder trust (CRT) work?

A charitable remainder trust (CRT) provides income to you or your beneficiaries for a set term, after which the remaining assets go to a charity. This structure allows you to receive tax benefits, such as a charitable deduction and potential capital gains tax deferral.

4. What are the advantages of donating appreciated assets to charity?

Donating appreciated stocks, real estate, or other investments allows you to avoid capital gains tax and take a tax deduction for the full fair market value of the asset. This strategy increases the amount given to charity while reducing your tax liability.

5. Can I make charitable donations directly from my retirement accounts?

Yes, if you are 70½ or older, you can make Qualified Charitable Distributions (QCDs) directly from your IRA to a charity. This reduces your taxable income and can satisfy Required Minimum Distributions (RMDs).