Not only do you have a chance to give one last gift to a cause that may be near and dear to your heart, but there are tax advantages to both you and your heirs. But with so many options available, how do you go about creating a plan that’s right for your estate?
The Nashville charitable planning attorneys at MHPS have worked with countless clients throughout Middle Tennessee planning their estate. With years of experience in estate planning and administration, we can advise you on the right plan for your needs and make sure final wishes are carried out to the fullest extent.
Charitable Gifts – Which is Right for You?
There are quite a few different types of charitable gifts available for you to choose from.
Charitable Remainder Trusts (CRTs)
A charitable remainder trust allows you to convert highly appreciated assets into lifetime income. When trust assets are sold, capital gains tax is avoided. In addition, individuals also get a charitable income tax deduction when the trust is funded, which reduces their income taxes.
You can transfer the appreciated asset into an irrevocable trust. By doing this, there will be no estate taxes due on it once you pass away. The trustee can then sell the asset at the full market value without worrying about paying the capital gains tax and then reinvest the proceeds.
Charitable Lead Trusts (CLTs)
A charitable lead trust may be established to give a certain amount of income to a charity for a set number of years. Once the set term has ended, the remaining assets of the trust may pass to family members and bypass estate and gift tax consequences. You can transfer either cash or any other assets into this trust.
Outright Distributions to Charity
Outright gifts to charities are a common option as well. Restricted gifts are those designated for a specific purpose, such as to build a structure or create a fund. Unrestricted gifts allow charities to choose how a donation will be spent. Outright gifts can be made either during an individual’s lifetime or at their death.
Private Family Foundation
This is a charitable organization that is funded by family assets. Donors establishing foundations have significant control over how much is given to a charity, and how gifts may be used.
In addition, charities can be named as beneficiaries in a person’s will or revocable trust. Additionally, specific retirement plans like IRAs, 401(k)s, or 403(b)s may be designated to a charity. Retirement plan assets left to a charity are also not subject to income or estate taxes. Retained life estates gift real property, such as a home or another real estate holding, to a charity, but they grant the owner the right to use the property during their lifetime. This also allows for an income tax deduction.
Charitable Deductions – Charitable Planning
If you are planning to make a charitable donation, you may want to take a close look at which organizational donations can give you a tax deduction. By contacting the IRS, you will be able to find out if the organization counts for the deduction but be sure to keep this confirmation when filing your taxes.
Such organizations which qualify for a tax deduction include:
- Religious organizations: churches, synagogues, temples, mosques, etc.
- Public proceeds by the federal, state and local governments
- Nonprofit schools, hospitals, and volunteer fire companies
- Public parks and recreation facilities
- Salvation Army, United Way, Red Cross, Goodwill, Boy Scouts, and Girl Scouts
- War veterans’ groups
There is a limit to the number of deductions you may qualify for. It is limited to 50% of your adjusted gross income and may be limited to 20 or 30 percent of your adjusted gross income depending on the type and amount of property you donate and the type of organization you give to.
When it comes to charitable planning in Tennessee, there are a variety of benefits to not only the charity of your choice but to your heirs. But determining the proper trust can be difficult and mistakes can happen. Take a look at these charitable planning frequently asked questions from MHPS.
Charitable planning is a type of estate planning which allows you to make contributions to a charity or cause you care about with the assets of your estate.
It allows you to make periodic or annual gifts throughout your lifetime as well after you pass away if you desire.
There are many different ways to make charitable gifts including:
- A charitable remainder trust gives you an immediate income tax deduction, a lifetime stream of income, and a waiver of capital gains taxes owed on property.
- A charitable lead trust creates an income stream to charity for a set term with the remainder of the trust going to your children without any tax consequences.
- A private foundation provides freedom by placing restrictions on how your gifts are used by charities.
- A donor-advised fund allows you to maximize your income tax savings on your contributions to church or charities.
This type of planning as a portion of your estate plans should be considered by anyone who is passionate about specific causes they wish to give to. In addition, if you are looking for tax advantages for both you and the beneficiaries of your estate, charitable planning is a great way to do so.
There are many incentives, the most common is the tax advantages you may receive. When you utilize charitable planning, you are eligible for tax deductions up to 50 percent of your adjusted gross income. However, you may be limited to 20 or 30 percent of your adjusted gross income depending on the type and amount of property you donate to charity and the type of organization you wish to give to.
There are a variety of charitable trusts you can create in Tennessee. They include:
- Charitable Remainder Trusts
- Charitable Lead Trusts
- Outright Distributions to Charity
- Private Family Foundation
In addition, you can name a charity as a beneficiary to your estate, retirement plan, etc.
The type of charitable trust you create or donation you give will determine the type of deduction you are eligible for. For example, if you make a charity a beneficiary of your retirement plan, this is not subject to income or estate taxes.
You will have to review your charitable trust plan with an estate planning lawyer to determine the trust and ensure you are eligible for deductions, the IRS will provide confirmation of the type of deduction which you will need to keep on record for filing your taxes.
When done with an estate planning lawyer, you should not run into mistakes when creating charitable trusts. However, when you do it alone, there are some common mistakes that occur.
- Failing to put the donor’s needs first
- Misappropriating funds
- Not having a proper trustee
Contact Our Tennessee Estate Planning Lawyers Now
If you’re interested in charitable gifting, it’s best to speak with an experienced estate planning lawyer to guide you through the process. The charitable planning attorneys at MHPS can help you decide which kind of charitable trust or foundation is right for you, and assist in the execution of your overall estate plans.
Our firm offers dedicated legal services to people in Nashville, Franklin, Green Hills, Bellevue, Hermitage, and West Meade, as well as other communities across Williamson and Davidson Counties. If you have questions regarding how to give a charitable gift most effectively, or about any other estate planning matter, contact our office today.