Incorporating charitable giving into an estate plan has many benefits. Not only does the benefactor get to make a positive societal or environmental impact with a portion of their wealth; they will also receive certain tax benefits that can result in other beneficiaries receiving more. The specific rules vary between jurisdictions, but many countries allow tax reliefs such as reductions in inheritance tax or income tax when a percentage of income or the estate is gifted to charity.
Dr Edgar Paltzer works as an attorney-at-law operating from Switzerland and offers estate planning services as one of his preferred areas of practice. People who choose to donate to charity as part of their estate planning process can generate personal savings as well as funding valuable causes.
A definition of what estate planning entails can be found in the PDF attachment to this post.
Dictating Giving in a Will
One way to donate to charity is to dictate giving as part of a last will and testament. Estate tax liabilities are usually decreased when charitable giving is included as part of the deceased’s last wishes, which can reduce financial burden on family members as well as supporting an important cause. Experienced estate attorneys have the knowledge and expertise to advise on the best way to donate to charity through a last will and testament.
Donating a Retirement Account
Retirement accounts or insurance benefits in some jurisdictions can often be left to beneficiaries after death and charities can be designated as those beneficiaries if requested. When the account is liquidated, the charity will not have to pay either estate taxes or income taxes on the donation, which other beneficiaries may be liable for. By donating a retirement account to charity, the benefactor is assured that 100% of the funds will go to the designated beneficiary.
The embedded short video looks at how to donate a retirement account to charity after death.
Donating Appreciated Assets
Another way to help a charity after death or in life is to donate highly appreciated assets. There are pros and cons to this approach. Some charities do not have the capability or the systems in place to be able to accept these types of donations and use them in the most worthwhile way, so choosing the right cause and organisation is essential. However, charities that are able to process donations of appreciated assets can benefit greatly from them. Community foundations and donor-advised funds are usually best placed to accept less-liquid donations.
Trusts and Foundations
Establishing a trust or foundation can be a great way to maximise benefit for the recipients while minimising transfer taxes and helping to reduce overall tax liability on an estate. Some solutions are more advantageous than others, so seeking the advice of an estate planning professional can help determine the optimal route to take. Split-interest trusts provide options for retaining control of the assets designated to the trust throughout life and passing them on only after death, which can have benefits for both parties.
Carrying Credits Back
In certain jurisdictions, it may also be possible to carry credits back, meaning decreased tax liability may be counted for the previous year as well as the year of death. In regions where this is allowable, the tax donation upon death must be substantial enough for all taxes for that year to be eliminated. Estate planning attorneys will be able to advise clients on the specific legislation for their jurisdiction.
The infographic attachment names some of the most generous billionaire philanthropists of recent years.