When planning your charitable giving, it helps to know which of your options best enable your goals and maximize the impact of your generosity to the people and causes you care about. Making a charitable bequest can help you
What is a charitable bequest?
A charitable bequest is simply a gift you make as part of a will or trust. For example, you might name a church, a charity or a foundation that will receive a portion of your assets. Anyone can include a bequest in their will or trust.
Protect your family and your causes
When you make a charitable bequest in a will or trust, you don't necessarily have to choose between family and charity; you can strike a balance. In many cases, you can ensure that your loved ones will be able to access assets if needed, which can give you confidence as you move forward with your giving strategy.
You can formalize your bequest by putting everything in writing. This raises the chances that your desired gift will occur in accordance with your wishes, without burdening your loved ones to make decisions about how to honor your legacy. Ultimately, you can get your affairs in order whenever it's easiest to do so—if you need to make changes down the road, it may be possible to update elements like beneficiary designations or instructions in your will.
Leave a legacy
With a charitable bequest, you can
Gain potential tax benefits
A thoughtful tax strategy can maximize the value and impact of your gifts. In some cases, you can receive financial benefits after giving assets to a charity. For example, if you establish a
In addition, you can provide tax benefits for your loved ones through planned giving. You may achieve better tax efficiency by leaving pretax assets in your retirement accounts to a charity, which would not owe income taxes when liquidating those accounts. Meanwhile, you could designate tax-friendlier assets to family members. For example, you might leave your children individually owned real estate or assets in a brokerage account.
4 types of bequests to consider
You can use a charitable bequest to designate donations from several asset types.
1. Charitable bequest in will
A relatively simple approach is to
2. Life insurance beneficiary
You can name one or more charities as
3. Retirement account beneficiaries
Similar to life insurance,
Pretax retirement accounts could be among the best assets to donate to charity. Because tax-qualified charities do not pay income tax, the charity will be able to use 100% of the proceeds to further its mission. On the other hand, if you leave those assets to family members, they may potentially need to pay income tax on withdrawals from pretax accounts—leaving them with less money to spend after taxes. If your loved ones are in a high-income tax bracket, they might end up with substantially less than 100%.
4. Charitable trust options
A charitable lead trust might also be appealing. With that option, the charity gets income payments while the trust is in place, and beneficiaries such as family members receive any remaining assets at the trust's termination.
How to leave money to charity
You can choose one or more ways to give assets to charity:
Direct giving. You can name specific charities as beneficiaries. When you know exactly where you want the money to go, this can be a straightforward option. Donor-advised fund (DAF). You can leave assets (including cash, investments, real estate and other valuable items) to a donor-advised fund ,which is a tax-qualified charity that you can set up while you're alive. After your death, your loved ones can make gifts from the fund to other charities.
If you're not certain which charity you want to leave assets to, that's okay. Setting up a DAF allows you to begin the process of planned giving while still leaving your options open. Once assets go into a DAF, you can invest the funds for growth or establish giving programs. For example, you might advise the fund to make lump sum or recurring gifts, and those gifts can continue for many years.
To illustrate just one way to use a DAF for planned giving, consider Gaye Guyton's story. Gaye always enjoyed giving money to family members to they could experience the joy of donating those funds. Before her death, she established a DAF. Now her children, nieces and nephews all have a voice in recommending charitable donations from the fund. As a result, her legacy lives on, and her loved ones get to practice generosity every year.
Specify your bequest type
You have the power to leave money to charity in a way that feels right and works well for your family—you're in control. Your options include:
- Dollar amount. Specify a specific amount of money for a charity, such as $25,000.
- Percentage. Indicate what portion of assets should go to a charity, such as 25% of a retirement account.
- Specific assets. Identify assets that you want a charity to receive, such as a parcel of land.
- Remainder. Leave instructions to give any remaining assets to a charity after all other distributions (bequests to loved ones or other specific recipients) occur.
Develop your own planned giving strategy
To move forward with your planned giving strategy, start by identifying the causes that matter to you most. Taking these four steps can help:
- Decide where you want your money to go and think about how the organization might put your funds to use.
- Discuss your charitable bequest with loved ones. Will anybody be at risk of hardship, and if so, what would improve the situation? Would you like family members' input on which charities you choose?
- Work with your financial advisor and CPA to evaluate the financial impact of your giving goals.
- Consult with an attorney to
draft or review any documentsand beneficiary designations that are part of your strategy.
If you're thinking about making a charitable bequest, reach out to a