For many individuals, making charitable donations is a way to give back to their community and support causes that are important to them. However, charitable planning can also play an important role in estate planning. Working with a Massachusetts charitable planning attorney to incorporate a strategic plan for charitable donations into your estate plan can accomplish your goals of giving back to the community and supporting important causes while reducing the tax liability for yourself and your heirs.
Three Charitable Options that Can Help You Save
There are several ways to take advantage of certain tax laws that provide tax incentives for giving to charitable organizations. Three options you might want to consider as part of your charitable donation plan include:
1. Qualified Charitable Distributions
This irrevocable charitable donation is for individuals who may not need all of the income from their Individual Retirement Account (IRA). A Qualified Charitable Distribution (QCD) is a direct payment from your IRA to a charitable organization. The benefit for the individual is that the required minimum distribution they would have had to claim on their tax return as income is no longer income. A senior can exclude up to $100,000 per year of RMDs from their taxable income by gifting the RMDs to a charity.
2. Charitable Trusts
There are a variety of charitable trusts, but two charitable trusts might be worth additional consideration. A Charitable Remainder Trust (CRT) is an irrevocable trust that provides an immediate tax deduction and income payments for you or another beneficiary. The charity only receives the benefit of the trust after your death. However, during your lifetime, you or another beneficiary can enjoy income from the trust and the immediate tax deduction upon funding the trust.
A Charitable Lead Trust (CLT) is another type of irrevocable trust. However, with a CLT, the charity receives payments from the trust for a specific period. At the end of the payment period, the remainder of the trust is returned to the grantor or the grantor’s family. The type of CLT determines the exact tax benefit, which can be the reduction of estate and gift taxes or an income tax deduction.
3. Establish a Donor-Advised Fund
A donor-advised fund is a great tool for individuals who may want to support several charities but may not be sure right now what charities they want to support. It can also be useful for individuals who are not yet ready for retirement but want to ensure they have funds available during retirement to support various charitable organizations. A sponsor organization manages the charitable investment account.
Individuals can donate money and other assets while they are earning higher levels of income to receive the most benefit from the tax savings without feeling rushed to choose certain charities. The assets in the fund grow tax-free. The donor can then decide which charities he or she wants to support and make recommendations to the fund. A downside is that the sponsoring organization has the final say on how the funds are used. Therefore, your charities may not benefit from your suggestions.
Discuss Your Charitable Options with a Massachusetts Charitable-Planning Attorney
If you want to take advantage of the tax benefits of charitable giving while supporting your favorite charities, contact our office today to learn more. We can help you develop a charitable giving strategy that accomplishes all your goals for gifting and tax savings.