Estate Planning and Charitable Donations

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If you regularly donate to your church or favorite charity, you may be considering gifting a part of your estate when you pass. As part of your Estate Plan, you can specify what, who, and how much when it comes to charitable donations.

Three Legal Documents

Power of Attorney, a Will, and a Revocable Living Trust are the three main estate planning documents, where you can spell out exactly what you want to donate and to whom, and allow you to appoint someone to carry out your wishes. Let’s take a look at each one.

Power of Attorney

This is a document where you appoint someone who will serve as your agent or attorney-in-fact to manage your finances if you cannot. You choose the amount of legal authority this person can have. You also have the option of expanding or limiting the time the Power of Attorney serves.

If you make weekly, monthly, or other timely donations to charity and you are unable to due to illness or travel, your Power of Attorney can step in. You can empower your agent to make the donations on your behalf so your assets can continue to benefit your charity. 

Will

This legal document gives you the power to distribute your assets to the people and charities you care about after you die. The executor that you choose would oversee the Will and carry out the instructions you set.

In the Will, you can specify the gifts: splitting the assets between your beneficiaries and charities or setting percentages of remaining assets to be distributed to your favorite charities or organizations once your beneficiaries received their inheritances.

For example, let’s say you have assets valued at $500,000 at the time you created the Will. You specified that $10,000 would be donated to charity and the remaining amount would be distributed to your two children.

However, over the years, your assets increased to $2 million. In this case, you may want to donate $40,000 or more to your charity instead of the $10,000.

Conversely, let’s say that since you originally created the Will, your assets decreased in value and all that is left is $20,000. In this scenario, your two children would split the remaining $10,000, after the charity received the $10,000 you originally specified. This would leave your children with very little, and you might have preferred a different outcome.

This is why it is imperative to review your estate plan documents regularly, and we recommend doing so at least yearly. The best time to do so is when you are doing your income taxes, because that is when you probably have a clearer picture about your assets and liabilities. Your estate plan should be adjusted accordingly as assets, liabilities and life changes happen.

Revocable Living Trust

This is similar to a Will but is effective while you are alive. A Trustee you appoint oversees the Trust. As with a Will, you can set specific or percentage charitable gifts that are calculated based on the full amount of your estate. 

A Trust may help maximize your gifting when it comes to taxes. There are tax savings opportunities and implications depending on the type of asset you want to donate. 

A gift to a beneficiary that would be taxable could be tax exempt when donated to a charity. It is best to consult with a tax advisor before setting up a Trust with charitable gifting.

Consider Gifting with Your Estate Plan

The COVID-19 pandemic has wreaked havoc with many charities dependent on donations. Consider donating to a charity to help those in need.

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