Choosing the Right Gift for Your Favorite Charity
As Thanksgiving approaches and the holiday season begins, many people start thinking about ways to give back. Whether supporting a local nonprofit, donating to a church, or helping an organization that serves families in need, charitable giving can be a meaningful part of the season. However, writing a check isn’t the only way to support a cause you care about. In this post, we examine charitable giving estate planning.
Depending on your financial circumstances, donating appreciated assets or retirement account funds may offer advantages for both you and the charity. In addition, thoughtful charitable planning can become an important part of your estate plan.
Before making a significant donation, consider how different types of gifts may affect your finances, taxes, and long-term goals.
Giving Cash to Charity
For example, if you purchase a ticket to a fundraising dinner, you generally cannot deduct the value of the meal or other benefits you receive. Instead, the potentially deductible portion is usually the amount exceeding the fair market value of those benefits.
Additionally, charitable deductions depend on applicable tax rules, including eligibility requirements and annual limits. Before making a substantial year-end contribution, consult your tax advisor about the rules that apply to your situation.
Donating Appreciated Stock or Property
If you own stock, real estate, or other assets that have increased in value, donating those assets directly may offer advantages over selling them and donating the proceeds. Appreciated property is an asset worth more today than its original purchase price.
For example, suppose you purchased stock years ago and its value has increased significantly. Selling that stock could trigger capital gains taxes. However, transferring eligible appreciated stock directly to a qualified charity may allow you to avoid recognizing the gain.
Depending on the asset, how long you’ve owned it, and other tax requirements, you may also qualify for a charitable deduction.
Potential advantages include:
- Reducing or avoiding capital gains taxes on eligible donated assets
- Allowing the charity to receive the asset’s value without your first selling it
- Potentially qualifying for a charitable income tax deduction
- Supporting an organization while incorporating giving into your financial plan
However, these benefits aren’t automatic. Special rules apply to different types of property, and not every charity can accept stock or real estate. Therefore, discuss the proposed gift with the organization and your financial advisors before transferring ownership.
Using Retirement Accounts for Charitable Giving
Retirement savings may provide another opportunity to support charitable causes. For eligible IRA owners, a qualified charitable distribution (QCD) allows funds to move directly from an IRA to a qualifying charity without the distribution being included in taxable income, provided applicable requirements are met.
A qualifying QCD may also count toward a required minimum distribution (RMD). This approach can be especially useful for individuals who want to support charitable organizations but don’t need all the retirement funds they are otherwise required to withdraw. However, eligibility rules, annual limits, and distribution requirements apply. Furthermore, you cannot claim a separate charitable deduction for the same QCD.
Before arranging a transfer, speak with your tax advisor and retirement account custodian to confirm the current requirements.
Leaving Retirement Assets to Charity
Charitable giving doesn’t have to occur during your lifetime. You may also choose to support an organization through your estate plan. For example, you can name a qualifying charity as a beneficiary of a retirement account. This approach may provide tax advantages because many charitable organizations generally don’t pay income tax on retirement account distributions they receive.
By comparison, individual beneficiaries may owe income tax when withdrawing inherited retirement funds. Consequently, leaving certain retirement assets to charity while directing other property to loved ones may be worth discussing with your estate planning attorney and financial advisors. However, beneficiary designations should coordinate with your overall estate plan. An outdated designation could direct assets differently than you intended.
How Charitable Giving Fits Into Estate Planning
For many families, charitable giving reflects values they want to pass on to future generations. Whether you want to support a particular organization during your lifetime or leave a lasting gift after your death, your estate plan can help clarify those intentions.
Depending on your circumstances, planning options may include:
- Naming a charity as a retirement account beneficiary
- Including charitable gifts in a will or trust
- Coordinating lifetime donations with your financial plan
- Reviewing beneficiary designations as your circumstances change
Charitable transfers may also affect estate taxes in certain situations, although most estates do not owe federal estate tax. The appropriate approach depends on your assets, family responsibilities, charitable priorities, and applicable law. That’s why estate planning and tax planning should work together rather than being treated as separate decisions.
Make Your Holiday Giving Part of a Lasting Legacy
The holiday season offers a wonderful opportunity to support organizations that make a difference in your community. However, thoughtful charitable giving can accomplish more than meeting an immediate need. By considering cash donations, appreciated assets, and retirement accounts, you may find ways to support your favorite causes while advancing your financial and estate planning goals.
At Skvarna Law Firm, we help individuals and families consider how charitable intentions fit into their broader estate plans. Working alongside your tax and financial advisors, we can help you explore options that reflect your priorities and protect your wishes. If you’re considering a significant charitable gift or want to include charitable giving in your estate plan, contact Skvarna Law Firm to discuss your goals.
About Skvarna Law Firm in Upland and Glendora, California
Skvarna Law Firm operates offices in Glendora and Upland, California and provides legal services for individuals living in San Bernardino, Los Angeles, Orange and Riverside Counties. This includes the cities of Upland, Ontario, Rancho Cucamonga, Fontana, Colton, Rialto, Chino, Chino Hills, Glendora, Claremont, Pomona, La Verne, San Dimas, Azusa, Covina, West Covina, Diamond Bar, Walnut, La Puente, Corona, Norco & Mira Loma. Visit SkvarnaLaw.com to learn more.
