Charity as Part of the Estate Plan

There are many ways to give to charity, and one of those is through your estate plan. If you decide to do this, you will want to make your wishes known clearly and distinctly, so you can have the peace of mind that comes with proper planning for the future. There are a couple of different ways you can make sure a charity is getting the donation you want them to have as you plan your estate. Adding them to your will or trust, or naming them beneficiary of an IRA or 401K account, are both options, depending on how much you plan to leave them and what investment vehicles you currently have.

Naming a Charity as a Will or Trust Beneficiary

An easy way to achieve charity goals is to name a charity or charities as part of your will or trust.  You can name the charity as a beneficiary as either a fixed dollar amount or as a percent of the estate.

Naming a Charity as an IRA or 401k Beneficiary

  • Together, estate taxes and income taxes may substantially diminish an inheritance from a traditional IRA, 401(k) or 403(b).  A person may be able to eliminate or reduce taxes by strategically giving assets at death based on the type of asset and the type of beneficiary.
  • To help reduce the income tax burden to individual recipients, consider leaving individuals assets that have tax-free income (e.g., a Roth IRA, life insurance proceeds) or whose basis can be stepped up at your death (e.g., real estate or appreciated securities in a taxable account).
  • Consider donating assets that will be subject to income taxes to qualified charities:  A tax-exempt public charity can withdraw pre-tax monies from non-Roth retirement accounts, such as Traditional IRAs and 401(k)s without paying income taxes.

Treat the Charity as another child?

Another option to consider is treating an important charity as a part of the family, or like a child. For example, if you have two children and you want to provide for them and also donate to charity, one of the ways to do that is through making each child and the charity equal beneficiaries. That can be done with wills, trusts, IRAs, 401k options, and a number of other great ways to give.