Charitable giving can be one of the most rewarding aspects of your estate plan. Beyond the personal satisfaction of supporting causes close to your heart, strategic charitable planning offers significant tax advantages and helps create a lasting impact on the organizations you care about.
When it comes to incorporating philanthropy into your estate plan, you have two primary paths: making lifetime gifts or setting up charitable bequests that take effect after your death. Each approach offers distinct benefits and considerations that can dramatically impact both your financial situation and your charitable goals.
Understanding these options empowers you to make informed decisions that align with your values, financial objectives, and legacy aspirations. Let's explore how each strategy works and which might be the better fit for your unique circumstances.
Lifetime charitable giving allows you to witness the fruits of your generosity while you're still here to enjoy them. When you make gifts during your lifetime, you get the immediate satisfaction of seeing how your contributions make a difference in real time.
From a tax perspective, lifetime gifts offer a dual advantage. You receive an immediate income tax deduction (subject to applicable limits), and the gifted assets—plus any future appreciation—are permanently removed from your taxable estate. This can be particularly valuable if you expect your assets to grow significantly over time.
However, lifetime gifts do require you to part with your wealth now, which may not be comfortable for everyone. You need to ensure you have sufficient assets remaining to maintain your desired lifestyle and handle unexpected expenses.
Charitable bequests through your will offer a different approach to philanthropic planning. These gifts take effect only after your death, allowing you to retain full control and use of your assets throughout your lifetime.
The primary tax benefit of charitable bequests comes through the unlimited estate tax charitable deduction. When you leave money or property to a qualified charity in your will, your estate can deduct the full value of the gift, potentially reducing or eliminating estate tax liability.
This approach works particularly well if you're concerned about having enough assets during your lifetime or if estate tax minimization is a primary goal. For 2025, the federal gift and estate tax exemption is $13.99 million, and with recent legislative changes, this amount will be permanently set at $15 million beginning in 2026, with annual inflation adjustments.
If you choose the charitable bequest route, proper planning is essential to ensure your estate receives the intended tax benefits. The IRS has specific requirements that must be met:
Qualified Recipients: Your will must specify donations to qualified charitable organizations. A common pitfall is failing to account for changes over time—charities may change names, merge with other organizations, lose tax-exempt status, or cease operations. Always name contingent charitable beneficiaries to protect against these possibilities.
Ascertainable Amounts: The bequest amount must be clearly specified in your will. You can leave a specific dollar amount, particular assets, a percentage of your estate, or the residue (what remains after all other distributions and expenses are paid).
Proper Documentation: The charitable bequest must be included in your gross estate and transferred through your will to qualify for the estate tax deduction. Giving your executor or beneficiaries discretion to make charitable gifts won't qualify for the estate tax charitable deduction, though beneficiaries may still receive income tax deductions.
The decision between lifetime gifts and charitable bequests often comes down to your personal circumstances, comfort level with parting with assets, and specific tax situation.
Lifetime gifts make sense if you want to see your impact, have sufficient assets to maintain your lifestyle, and want to remove appreciating assets from your estate. Charitable bequests work well if you prefer to retain your wealth during your lifetime, want maximum flexibility, or are primarily focused on estate tax reduction.
Many successful philanthropists use a combination approach, making some lifetime gifts to causes they want to support immediately while also including charitable bequests in their estate plans for larger legacy gifts.
Regardless of which approach you choose, proper planning ensures your charitable intentions are carried out effectively while maximizing available tax benefits. Working with experienced professionals helps you navigate the complex rules and avoid common pitfalls that could jeopardize your intended benefits.
Your charitable giving strategy should align with your overall estate plan, taking into account your family's needs, tax situation, and philanthropic goals. Regular reviews ensure your plan remains current as laws change and your circumstances evolve.
Ready to explore how charitable giving can enhance your estate plan? Contact SD Mayer & Associates today. We'll help you develop a customized strategy that maximizes both your tax benefits and your charitable impact, ensuring your legacy reflects your values while achieving your financial objectives.