How To Make Charitable Giving Part Of Your Estate Plan

We are coming to the end of the year; major holidays are weeks away and thoughts of gratitude and giving are topics of conversation and reflection. The Tuesday after Thanksgiving is “Giving Tuesday,” and several weeks later we celebrate Christmas and Hanukkah by giving gifts to our loved ones.

In the spirit of giving, both acts of charity and taxes come to mind. Charitable giving plays an important role in managing both income and estate taxes.

Giving Has Benefits 

Charitable giving can be an important component of your estate plan. For those charitably inclined, giving has many advantages:

• Personal Satisfaction. We feel this way every time we work with Bethel Express (BE) here in Rochester. BE has been making a tremendous impact on our community for years.
• Flexible Strategies. You can give during your lifetime or upon your death. You can make an outright gift or use a trust that will eventually transfer assets to a charity in the future. For substantial giving, you can establish a private foundation or utilize a community foundation like the Rochester Area Community Foundation (RACF).
• Tax Advantages. Charitable giving is deductible for income tax and estate tax purposes. There are several strategies to consider:
1. Writing a check or giving cash to a charity. 
2. Qualified Charitable Distribution (QCD): make your IRA required minimum distribution (RMD) tax free. See our blog article on QCDs.
3. Donating appreciated assets. Donating stock or appreciated property is a good example. You are entitled to deduct the stock’s market value, and, as a bonus, you don’t have to pay capital gains tax on the appreciation.
4. If your estate is taxable, lifetime giving is an effective way to reduce your taxable estate. However, you can also leave a portion of your estate to a charity when you die as a bequest in your will or as a beneficiary of a financial account. A traditional IRA is a great choice to leave to a charity because you can avoid unpleasant income taxes and reduce your estate at the same time.

Tax Tip For Donations

Make sure the charity is a qualified charity according to the IRS. You can do this on the IRS website. This is important for giving during your lifetime and through your estate. 

You need an acknowledgement from the charity for gifts of $250 or more with a statement that no goods or services were provided by the organization in return for the contribution, if applicable.  

Estate Planning Is More Than Estate Taxes

Most of us don’t need to be concerned about paying estate taxes. The federal estate tax exemption for 2022 is over $12 million per person. A married couple can transfer over $24 million to their family without paying federal estate tax. The Tax Cuts and Jobs Act (TCJA), signed into law on December 22, 2017, almost doubled the exemption, however; by the end of 2025 the estate exemption will be reduced to $6.8 million. There has been talk of lowering the exemption amount even further. 

Even after the sunset of TCJA, the exemption amount is still huge. So why are we concerned about estate taxes and planning? Well, there are a few things we all need to focus on:

• Estate planning documents (wills, power of attorney, health care proxy) reviewed to ensure they are consistent with your wishes.
• Legacy planning to ensure your estate, your values and family history are carefully passed to the next generation. We have a brief Legacy Planning Assessment you can download here to help you get started.
• Avoiding the New York Estate Cliff Tax (see below).

When will $50,000 cost you $126,000?

New York’s estate tax system is referred to as a cliff tax. This means that as soon as your estate is 5% greater than the exclusion amount, your entire estate is subject to tax. If you die in 2022, the New York Estate tax exemption is $6,110,000. However, if your estate is valued at $6,160,000, $50,000 over the exemption, you will pay $126,500 in NY estate taxes! 

This is when charitable giving and estate planning are akin to Mike Tyson’s right hook and right upper cut—a devastating combination sending NY Estate tax to the canvas! A $50,001 charitable gift will send NYS to the locker room saving your estate $126,500 in taxes!

Flexible Strategies

In charitable giving there is something for everyone. Here is a list of popular techniques we have used for estate and charitable planning purposes:

• Cash or check gifts
• Donation of appreciated assets
• Qualified Charitable Distributions
• Charitable Beneficiary Designations
• Charitable Remainder Trusts (CRT)
• Charitable Lead Trusts (CLT)
• Irrevocable Life Insurance Trust (ILIT)
• Private Foundation
• Community Foundation
• Donor Advised Funds
• Charitable Bail Out

As you can see, there are a variety of strategies and techniques designed for the purposes of estate and charitable planning. If you would like to discuss any or all these strategies, please contact our office and schedule an appointment.

Happy Thanksgiving!