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A Guide To Philanthropy In Your Estate Plan.

counting coins

Fortunately, we live in a very giving society. I say fortunately because many organizations, such as the local zoo, art museum, or performing arts centers depend on donations to operate and might be obsolete or operate on a much smaller scale without such donations.

According to Giving USA, donations to charitable organizations in the U.S. reached more than $427.71 billion in 2018. Sixty-eight percent of that figure came from individuals. The remainder consisted of government and foundation grants, estate bequests, and corporate philanthropy. (1)

Why do people give?

People make donations to organizations for a myriad of reasons, of such, the most common tend to be access, legacy, and loyalty to an institution due to a personal connection. Being a donor sometimes gives you behind-the-scenes access to the organization, and if it is an organization you enjoy, then this would excite you. There are Naming-donations, that put your name on a building, a wall, or on a pamphlet. These types of donations give people a sense of prestige or respect in the community. Then there are the donations just because you love an organization and want it to carry on.

Regardless of the reason, I am regularly confronted with individuals in my office who don’t want to leave their assets to family, but to an organization.

What is the best way to give in an estate plan?

There is not a one size fits all solution for estate planning in general or charitable giving in particular. The lawyerly answer is it depends. How to leave assets requires a look at your entire portfolio to determine what would best suit your goals.

For example, if you own a home valued at $500,000 and have retirement assets in the form of a 401k and IRA valued at $500,000 and you want to leave a percentage of those assets to a charity and the remainder to your loved ones, you would want to look at potential tax implications to your loved ones and the charity. You may tell me you want to leave 10% of your estate to a charity. But, it’s more complicated than leaving a flat 10% of your assets to the charity. A more detailed description of where those assets are coming from is necessary if you want to maximize the assets.

Your home, if passed to your loved ones via proper estate planning, will avoid capital gains tax by receiving a step-in basis. Meaning that if your loved ones sell the home, any capital gains they will be taxed on are the value of the property when they received it, not when you bought it. So, say you bought your house for $100,000 20 years ago and it has appreciated in value to $500,000 at your death. Your child can sell the house for $510,000 and only be taxed on the $10,000 capital gain, not $410,000 as you would have you sold the house. This could mean huge savings for your child.

With retirement accounts and IRAs, every dollar distributed is considered taxable income and your child would be taxed. In contrast, non-profit organizations are exempt from income tax, and therefore would get the total dollar value of the assets.


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