Charitable giving plays an important role in estate planning. It helps lower taxes while supporting meaningful causes. The latest trends in charitable giving help people get the most benefits, allowing them to leave a lasting impact.
Donor-advised funds (DAFs)
More people are using donor-advised funds for estate planning. DAFs let individuals make donations during their lifetime and even after they pass away. Donors decide when and where their donations go. With a DAF, they receive an immediate tax deduction, and the funds grow tax-free until distributed to a charity. This flexible approach provides significant tax benefits and allows support for many causes over time.
Qualified charitable distributions (QCDs)
Qualified charitable distributions represent another growing trend. People aged 70½ or older can use QCDs to make tax-free donations from an IRA directly to a charity. This approach meets required minimum distributions (RMDs) and lowers taxable income. Many people choose QCDs to combine retirement planning with charitable giving, creating a win-win situation.
Charitable remainder trusts (CRTs)
Charitable remainder trusts offer another effective way to give to charity. With a CRT, individuals transfer assets to a trust, which pays income to beneficiaries during their lifetime. After that, the rest goes to a designated charity. A CRT provides several tax benefits, including reducing estate taxes, providing an income tax deduction, and avoiding capital gains taxes on appreciated assets. This makes CRTs a good choice for those who want to support loved ones and charities at the same time.
Combining charitable donations with estate tax strategies
Combining charitable giving with strategies to lower estate taxes has become more common. Many people include gifts to charities in their wills or trusts. This reduces their taxable estate and minimizes estate taxes, while also creating a lasting legacy of giving.
Charitable estate planning provides an opportunity to make a meaningful impact while benefiting from tax advantages. By exploring these trends, individuals can find the right approach to align with their values and financial goals, ensuring their legacy makes a difference for future generations.