Whether charitable donations are made to benefit from tax advantages, to fulfill a sense of value and purpose or for different reasons, creating a charitable giving plan can be an important aspect of estate planning. Understanding common types of charitable giving can help donors achieve their goals when making charitable giving plans.
Common Charitable Gifts
•· Cash: A charity can be named as a beneficiary in a donor's will or a direct donation can be made during the donor's lifetime. There is no tax on money given to a charity, and lifetime charitable donations are tax-deductible. But a donor does not receive a lifetime tax-deduction for a donation made through a will.
•· Retirement accounts: Funds from an IRA or 401(k) retirement account can go directly to a charity by designating the charity as the beneficiary of the plan. Distributions from retirement accounts are generally subject to income tax, generation-skipping tax and estate taxes, but if the funds go to charity, they will not be taxed at all.
•· Life Insurance: Life insurance funds also can go directly to a charity by naming the charity as the beneficiary. If a charity is the designated beneficiary, the donor's premiums are tax-deductible and the proceeds will go to the charity tax-free. A charity also may be designated as a contingent or partial beneficiary, but then the premium payments are not tax-deductible.
•· Real Estate: Donors can give real estate outright to a charity or give the property with a retained life estate, which allows the donor to use the property until his or her death. If the donor owned the property for longer than a year, there will be no capital gains tax on the property's appreciated value upon transfer to the charity. In some cases, the fair market value of the property is tax deductible, and the property will not be included in the donor's estate for estate-tax purposes.
These are common charitable gifts, but many other types of donations are possible. If you would like to make a lifetime or posthumous gift to a charity, consult a Massachusetts estate planning attorney at our firm. A lawyer with experience in crafting charitable giving plans can discuss with you how to achieve your charitable giving goals most effectively.
