Estate Planning Business Succession
Sometimes as individuals and families increase in wealth, they want to give more to charities.
Some charitable donations may be tax deductible or be able to reduce tax liabilities. Let’s look at some suggestions if you decide you want to make charitable donations, according to WMUR’s recent article entitled “Money Matters: Considerations when making charitable gifts.”
First, it might be the time to establish a giving plan. The first step is to decide how much your family wants to give. When researching a charity, look at how the contributions will be used. Charity Navigator, a charity assessment organization, has a site to help you get started at charitynavigator.org. Each charity has a rating with additional information.
Besides annual giving, charitable giving can play a role in estate planning. Your estate planning documents can state these wishes, and sometimes, giving can reduce estate taxes. The federal government taxes wealth transfers during life and at death. Currently, these types of taxes are imposed on lifetime transfers exceeding $12.06 million per spouse at a top rate of 40%. States may also impose these types of taxes. Ask an experienced estate planning attorney about it.
To give to charity, you could include a bequest in your will or trust. Another option is to name a charity as a beneficiary on life insurance policies. Retirement plans such as IRAs, 401(k)s, and 403(b)s may also have a charity listed as beneficiary. If these plans are tax-deferred, then an advantage to using them to make charitable gifts is that a charity can get money tax-free that would otherwise be taxed.
You might also ask an estate planning attorney about a charitable lead or a charitable remainder trust.
Another option for giving is to use donor-advised funds, which gives the donor the tax benefit for making the gift all in one year but the option to make the actual gift later on.
A donor-advised fund is particularly useful for taxpayers who itemize deductions. This is an agreement between the donor and a host organization, which then becomes the legal owner of the assets.
You can tell the fund how to invest the contribution and how the money is disbursed. The fund controls the assets but usually will honor the donor’s requests.
Finally, you could set up a private family foundation. These are more complex but give you and your family control over the investment and distribution of the money. They work best when a significant amount of money is involved.
Reference: WMUR (Dec. 30, 2021) “Money Matters: Considerations when making charitable gifts”
7600 Chevy Chase Drive
Austin, Texas 78752