By: Scott Lynett, Esq.
When most people think about estate planning, they focus on providing for their family. While that’s important, your estate plan can also be a meaningful way to give back to your community. Whether you support a local charity, care about a specific cause, or simply want to leave a positive legacy, there are many simple ways to include charitable giving in your plan.
As an estate planning attorney, I encourage clients to consider how their plan can reflect not only their family goals but also their values. Below are several easy-to-understand strategies to help you do just that.
Charitable Giving in Your Will or Trust
One of the most straightforward ways to support a cause you care about is by including a gift in your will or trust. You can:
- Leave a specific dollar amount to a charity.
- Give a percentage of your estate.
- Donate property, such as real estate or investments.
- Set up a charitable remainder trust, which provides income to a loved one first and then benefits a charity later.
Establishing a Donor-Advised Fund
A donor-advised fund (DAF) is like a charitable savings account. You contribute money to the fund, receive a tax benefit, and then recommend grants to charities over time. This can be a flexible and simple way to organize your giving and support multiple causes.
Creating a Charitable Foundation
If you have significant assets and want to create a lasting impact, you might consider starting a private foundation. This allows you and your family to support causes such as scholarships, community programs, or other charitable efforts that are important to you.
Naming a Charity as a Beneficiary
You can also name a charity as a beneficiary on certain accounts, such as:
- Retirement accounts (IRA, 401(k))
- Life insurance policies
- Bank or investment accounts
This approach is simple to set up and allows assets to go directly to the charity without going through probate.
Using Required Minimum Distributions for Charitable Giving
If you are age 70½ or older, you can use a strategy called a Qualified Charitable Distribution (QCD) to support a charity directly from your IRA. Instead of taking your required minimum distribution (RMD) as income, you can have it sent straight to a qualified 501(c)(3) charity.
The benefit is that the money goes to the charity tax-free and is not counted as income on your tax return. This can be especially helpful if you do not itemize deductions. It’s a simple and tax-efficient way to meet your RMD requirement while supporting a cause you care about.
For example, imagine you are required to take a $20,000 RMD this year. If you take the distribution personally, that $20,000 is generally included in your taxable income. However, if you instead direct that $20,000 to a qualified charity as a QCD, the full amount goes to the charity, and you do not pay income tax on it. This allows you to support a cause you care about while potentially lowering your overall tax burden.
Be sure to work with your financial institution and advisor to make sure the transfer is done correctly.
Encouraging Family Involvement
Estate planning is not just about money—it’s also about values. You can use your plan to encourage your family to stay involved in the community by:
- Talking with your children about the causes you support.
- Including charitable giving as part of your family’s legacy.
- Setting guidelines for future giving.
Taking Advantage of Pennsylvania Tax Benefits
Pennsylvania offers certain tax benefits for charitable giving. For example, gifts to qualified charities may reduce or eliminate inheritance tax. Working with an experienced estate planning attorney can help you take full advantage of these opportunities.
Conclusion
Including charitable giving in your estate plan is a powerful way to leave a lasting impact. Whether you choose to make a simple gift, support a charity over time, or involve your family in giving, your plan can reflect what matters most to you.
If you would like to explore ways to incorporate charitable giving into your estate plan, I invite you to schedule a free consultation. Together, we can create a plan that supports both your loved ones and your community.