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How charitable giving fits with estate planning

On Behalf of | Jan 22, 2024 | Estate Planning

Non-profit or charity organizations exist for a specific purpose. Some of them help the homeless, while others may offer support to abandoned companion animals. These organizations generally rely on donations from individuals and businesses to continue offering their services.

People may occasionally donate to causes that matter to them throughout their lives. Many people decide to integrate donations to their favorite charitable causes into their estate plans. Charitable donations can actually be part of an individual’s overall estate planning strategy.

Donations can reduce estate tax risks

Those with significant personal assets may have to worry about the possibility that their estate could be subject to federal tax after they die. Estate taxes can significantly reduce how much an individual’s loved ones inherit from their estate. Although Florida does not collect an estate tax, the federal government could intercept as much as 40% of the total value of the estate in some cases.

Regular charitable contributions can reduce the overall value of someone’s estate as they age and therefore the likelihood of estate taxes after they die. Unlike gifts to friends and family members, donations to charitable causes do not trigger gift taxes. Particularly when someone uses those donations as a means of diminishing income tax obligations, they may need to consider annual limits to what they donate and strategically plan their contributions to maximize the benefits derived from those donations.

People may also arrange to make contributions after they die. An estate plan can include lump-sum donations of capital or other valuable assets, including vehicles and real property. Individuals can use charitable donations after they die as a way to reduce estate tax risk. Some people even establish trusts to prevent their loved ones or creditors from laying claim to assets that they would like to pass to a charitable cause after their death.

The amount of estate resources allocated to charities can reduce the total taxable value of someone’s estate and either reduce or eliminate their estate tax obligations. For these and many other reasons, integrating charitable giving into an estate plan can be a smart move for someone who is passionate about certain causes and who is eager to minimize their estate-related tax obligations.