Estate Planning with Charity in Mind: A Win-Win

 

When planning your legacy, incorporating charitable giving into your estate strategy can provide significant tax benefits, preserve wealth, and ensure long-term support for causes you care about. Whether you're navigating tax law changes, managing a high-income year, or considering how to leave a lasting philanthropic impact, strategic planning is key.

 

In this edition of Wiser Way to Give, we explore Estate Planning with Charity in Mind, offering insights into tax-efficient giving strategies and how to integrate philanthropy into your long-term financial plan.

 

Uncertainty in tax laws can impact how much of your wealth is directed to taxes versus charitable giving. Rather than making one-time cash donations, leveraging structured philanthropic tools can maximize tax efficiency while ensuring sustainable support for your preferred charities.

 

 

✔ Gifting Appreciated Assets – Donate stocks, real estate, or collectibles to avoid capital gains tax while claiming a full market value deduction.
✔ Charitable Trusts – Establish a Charitable Remainder Trust (CRT) or Charitable Lead Trust (CLT) to balance income needs with philanthropic giving.
✔ Qualified Charitable Distributions (QCDs) – If you're 70½ or older, donate directly from your IRA to reduce taxable income.
✔ Bunching Donations – Combine multiple years’ worth of donations in a single high-income year to maximize deductions.
✔ Strategic Business Giving – Business owners can optimize tax-efficient giving through structured charitable contributions.

 

 

Tom (60) and Lisa (57) recently sold a privately owned business and an investment property for a total of $4.5 million. Their financial windfall created a substantial tax liability, and they wanted to offset their gains while supporting healthcare and education nonprofits. Their goal was to minimize their tax burden, maintain financial security, and make a lasting charitable impact.

 

They met with their financial advisor to evaluate giving strategies that aligned with their estate plan.

 

🔹 Donation: $500,000 in cash to their preferred charities
🔹 Tax Deduction: Capped at 60% of adjusted gross income (AGI), with excess carried forward
🔹 Impact: Immediate benefit to charities, but no long-term control over funds

 

While this approach offered tax benefits, their financial advisor pointed out that it didn’t optimize tax savings or allow for structured, long-term charitable giving.

 

🔹 Donation: $1.2 million in highly appreciated stock + $600,000 into a Charitable Remainder Trust (CRT)
🔹 Tax Deduction: Immediate deduction for stock at full market value, avoiding $250,000 in capital gains tax
🔹 Impact: Reduces taxable income while creating a structured income stream for Tom & Lisa

 

By donating appreciated stock rather than selling it, Tom & Lisa avoided capital gains taxes and received a full tax deduction for the donation.

 

Additionally, they contributed $600,000 into a CRT, allowing them to receive annual income payments while ensuring that the remainder goes to charity upon their passing.

 

🔹 Donation: $2 million into a Donor-Advised Fund (DAF)
🔹 Tax Deduction: Immediate deduction of $2 million, reducing taxable income
🔹 Impact: Provides long-term control over charitable distributions

 

Instead of giving a lump sum to various nonprofits, Tom & Lisa set up a DAF, enabling them to take a large tax deduction upfront while distributing charitable gifts over multiple years. This strategy helped them:

✔ Avoid rushed giving decisions
✔ Maintain financial flexibility
✔ Support charities strategically over time

 

After reviewing their options, Tom & Lisa implemented a blended giving approach:

✔ $1.2 million in appreciated stock – Avoided capital gains tax and maximized deductions
✔ $600,000 into a CRT – Provided them with an income stream and future charitable benefits
✔ $2 million into a DAF – Allowed flexibility in distributing charitable gifts over time

 

By structuring their giving, Tom & Lisa successfully lowered their tax liability, preserved family wealth, and increased their ability to give to the causes they care about.

 

 

✔ Leverage Appreciated Assets – Reduce tax burdens by donating stocks, real estate, or collectibles.
✔ Utilize Tax-Efficient Trusts – Consider CRTs and Charitable Lead Trusts (CLTs) to balance income needs with philanthropy.
✔ Plan for Long-Term Impact – Integrate charitable giving into your estate and tax plan to adapt to policy changes.
✔ Work with Experts – Engage financial and legal advisors to optimize your philanthropic strategy.

 

 

Q: How much can I deduct for charitable contributions?
✅ Cash donations: Up to 60% of AGI | Non-cash assets: Up to 30% of AGI

Q: What happens if my donations exceed IRS limits?
✅ You can carry forward excess deductions for up to five years to maximize tax benefits.

Q: Should I wait to donate given tax law uncertainty?
✅ Not necessarily—strategic philanthropy provides immediate tax benefits while ensuring long-term impact.

 

 

We’d love to hear your thoughts! Drop a comment below or reach out to us directly to explore creative ways to align your financial goals with your charitable vision. 🌟

 

This information is provided for educational purposes only and should not be construed as tax or legal advice. Please consult your financial, tax, or legal professionals before implementing any charitable giving strategies. The information presented is based on sources deemed reliable; however, accuracy and completeness are not guaranteed.