When you are in the process of making out your estate plan, one of your goals may be to leave money or property to a charitable or benevolent institution. If so, you are not alone, as many people of all income levels have made the same choice. However, once you have made the decision to leave money to charity, your job is not done. There still remains the task of getting your estate plan in order so your wishes may be carried out. This requires a consideration of two main factors.
How do I want to transfer my assets?
One important consideration is the way that you are going to leave your assets to charity. Probably the easiest and simplest way to do this is to include your contribution as a provision in your will. Another simple but equally effective way is to designate the charity of your choice as a beneficiary on your retirement account (which has the contribution within it). After you die, the assets in the account will automatically be transferred to the charity.
If you have significant money or assets you wish to leave your charity, it may make better sense to set up a charitable remainder trust. In this type of trust, you have the ability to specify if your charity receives a fixed payment or a percentage of the assets for a certain period of time (e.g. a certain number of years or the remainder of your life). Once the period you designate has passed, what remains in the trust goes to the charity. Additionally, this type of trust gives you the freedom to change the beneficiary at any time, so you can donate to a different charity if you change your mind.
How will my donation affect my taxes?
The other main consideration that needs to be addressed when you leave money to a charity is how it will affect your taxes. If you choose to donate money to your charity through your will, for example, you are not allowed to deduct your donation from your income taxes. However, doing it this way has the benefit of reducing the size of your taxable estate, which is helpful if you are subject to estate taxes.
There are tax advantages and disadvantages to every available method of charitable donations that are too numerous and complicated to be listed here. Because of this fact, it is imperative that you consult with an experienced estate planning attorney before taking action. An attorney can review your estate situation, explain your available options and recommend one that would best carry out your wishes while minimizing your tax consequences.