Leave a Legacy That Matters: Charitable Giving Through Estate Planning
You have supported the same organizations for decades. The scholarship fund at your alma mater. A local religious place of worship. The hospice foundation that cared for your parent. Your giving history tells a clear story about what you value.
Your estate plan should reflect on these.
Lifetime giving became less efficient this year. Itemizers must now clear a floor equal to 0.5% of adjusted gross income before charitable contributions are deductible, and top-bracket taxpayers see the value of itemized deductions capped at 35%.
Your Retirement Account
The most consequential charitable decision in many estate plans is not in the trust or will at all. It sits on a beneficiary designation form nobody has read in a decade.
Traditional retirement accounts carry embedded income tax. Your children owe ordinary income tax on every dollar they withdraw, and under the SECURE Act, most non-spouse beneficiaries must empty the account within ten years of your death. That compresses a lifetime of deferred tax into a single decade, rather than their entire life expectancy.
A charity pays no tax. The same $500,000 IRA delivers full value to an exempt organization and something closer to two-thirds of that to your kids.
This strategy maintains your level of generosity while providing your heirs with assets that hold higher after-tax value. Once these specific assets are addressed, your will can distribute the remainder of your estate through direct cash gifts, a percentage of the residue, or backup provisions that take effect only if your primary beneficiaries do not survive you.
Where to Start
Deciding on the terms of your gift requires careful thought. If you restrict a gift to a specific program, that restriction could become obsolete if the program ends in the future. Conversely, an unrestricted gift allows future leaders to direct funds where they are needed most, as they determine.
Consider your family’s involvement as well. Naming your children as successor advisors is a great way to keep them engaged in philanthropy. However, it also means they will be managing your chosen priorities rather than pursuing their own.
Think about the duration of your gift. Do you want it to last indefinitely, or should it be spent down while the need is urgent? Regardless of your choice, it is vital to designate a fallback organization in case your chosen charity no longer exists when the time comes.
The Center for Estate Planning, a Maddin Hauser practice group, helps Michigan families manage complex trust and estate planning. Contact us to learn more about how we can help you support the causes you care about while maximizing your tax benefits.