People with the means to make tax-deductible donations can benefit from making estate plans too. You may not realize the extent to which charitable impulses also may help you save money on taxes and assist family members.
What Do Tax-Deductible Donations Have to Do with Estate Planning?
For people who own valuable assets, estate planning may center on reducing liability for gift taxes now and estate taxes in the future. Otherwise, your estate could end up paying thousands or millions in taxes, leaving less money for your relatives and other heirs. Making charitable donations is a great way to both reduce the value of your taxable estate and benefit worthy causes at the same time.
Donations or gifts to 501(c)(3) organizations and some other groups will give you tax deductions in the years you make the donations. “501(c)(3)” refers to the provision of the United States tax laws that specifies which groups qualify and allows the deductions. By making donations, you take money from your estate and give it to someone else – without having to pay gift taxes at the time. It also makes your overall estate worth less money, which could eliminate estate tax liability in the future.
By carefully planning your gifts to charity, you can maximize the benefits for your personal estate. For example, you might be able to make gifts in years when you have high tax liability so that the deductions lower the total tax bill. Or you may strategically pay down your estate so that you have less than the exemption amount for estate taxes. Finally, you could create estate planning structures that benefit both your family and deserving organizations.
Using Charitable Trusts in Estate Planning
Many people choose to create charitable trusts in order to benefit organizations for years to come. For example, you might make a trust that pays income to family members for their lifetimes, then gives the remainder to a charitable organization after they pass away. Alternatively, you could choose a trust that makes monthly donations to a charitable organization for a set time period, then gives the remaining money to a family member. There are other possible types of estate planning structures that benefit charity too.
Further, you can make a direct bequest to a charity in your will. Any amount given to charity in a will is not subject to estate taxes. If you give your entire estate to charity, then your estate may not owe estate taxes at all (regardless of whether you exceed the estate tax exemption amount). Before you make such a gift, though, talk to a lawyer to get informed advice on the gift.
Planning your estate? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.
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