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Using an estate plan to make charitable donations

On Behalf of | Jun 22, 2021 | Estate Planning |

Giving to churches, schools or other charitable organizations provides Maryland residents with an opportunity to help others and support good work. While these may be rewards enough, giving to charitable organizations can also be a prudent financial strategy. Charitable donations to qualified recipients are exempt from the federal gift tax, and they could also lower state and federal estate tax exposure. Giving to charities can also reduce income tax obligations because they are a deductible expense. When the amount donated exceeds the maximum allowable deduction, the balance can usually be carried forward for up to five years.

Charitable trusts

Many charities and financial institutions offer programs that allow individuals to give in a way that maximizes tax benefits. Those who give large amounts and wish to have a greater say about how their money is spent can set up charitable foundations. For many people, adding charitable trusts to an estate planning strategy provides the best way to give to charitable organizations while retaining a degree of control and reducing tax exposure. These trusts can be extremely flexible and provide grantors with income while they are alive and distribute the remaining funds to charities and other beneficiaries when they pass away.

Capital gains tax

Placing assets that have appreciated significantly, such as real estate or stock portfolios, into a charitable remainder trust supports good causes and can reduce capital gains taxes. Retirement funds in IRAs and 401(k)s can also be bequeathed to charities, but spouses must usually consent to these arrangements in writing. Bequeathed retirement funds pass directly to charitable organizations, and the amount can then be deducted to lower the estate tax due.

Help with estate planning

If you are thinking about adding charitable donations to your estate plan, you may wish to consult with an attorney that has experience in this area and shares your passion for improving the lives of others. An attorney could explain how using trusts and other estate planning tools wisely can both reduce your tax exposure and help those in need. An attorney may also advise you to revisit and modify your estate plan from time to time.