For many people, philanthropy is not just an occasional act or thought but a fundamental part of who they are and how they live their life. If supporting the causes that you care about is central to your values, it makes sense to weave philanthropy into your estate plan so that your generosity continues beyond your lifetime. Fortunately, estate planning provides a variety of tools that allow you to incorporate charitable gifts in ways that align with your goals, protect your assets, and even provide potential tax advantages. With that in mind, the Los Angeles attorneys at Schomer Law Group, APC explain how to incorporate philanthropy into your California estate plan.
Using Your Will for Philanthropic Gifts
One of the most straightforward ways to leave money or property to a charitable organization is by including the gift in your Last Will and Testament. While this option may seem simple, it is often not the most efficient method for making philanthropic gifts in your estate plan. Bequests in a Will generally do not provide tax benefits during your lifetime, and you lose control over how the gift will be applied once the transfer occurs. In addition, if your desire is to involve your children or grandchildren in long-term charitable work, a direct gift through a Will does not create a structure for that kind of involvement. For these reasons, many Californians turn to more sophisticated methods when philanthropy is a core estate planning goal.
Qualified Charitable Distributions from an IRA
For individuals with significant retirement accounts, the Internal Revenue Service provides another opportunity to give. If you are at least 70½ years old, you may direct up to $100,000 annually from your Individual Retirement Account (IRA) to one or more charitable organizations. These transfers, known as qualified charitable distributions (QCDs), satisfy required minimum distributions without being counted as taxable income. This means you can reduce your taxable income while ensuring that the funds directly support the charities of your choice. Naming a charity as a beneficiary of your IRA is also possible, but lifetime distributions often provide more flexibility and tax benefits.
Charitable Lead Trusts and Charitable Remainder Trusts
Trusts can be powerful vehicles for those who wish to balance charitable goals with the needs of family members or other beneficiaries. Two commonly used trusts that can help you achieve both of these important goals are the charitable lead trust (CLT) and the charitable remainder trust (CRT).
A CLT allows a designated charity to receive income from the trust for a set number of years. At the conclusion of that period, the remaining trust property passes to your chosen non-charitable beneficiaries, such as children or grandchildren. This structure provides an immediate impact for the charity while preserving wealth for family members.
A CRT works in the opposite order. With a charitable remainder trust, income first flows to non-charitable beneficiaries, often for life or for a specific number of years. Once the income term ends, the balance of the trust funds transfer to the charity. Both structures can reduce estate taxes and may also allow for an income tax deduction at the time the trust is created.
Charitable Gift Annuities
A charitable gift annuity provides a way to support a cause while also receiving a steady stream of income. The process begins with a contract between the donor and a qualified charity. You transfer cash, stocks, or other assets to the charity, and in exchange, the organization agrees to pay you (or you and your spouse) an income for life. Payments continue until the last annuitant passes away, at which point the remaining funds stay with the charity. This arrangement offers the satisfaction of contributing to a mission you value while also securing financial support during your lifetime.
Establishing a Private Foundation
If you wish to make a substantial commitment to philanthropy and involve your family in that gift, a private foundation offers the most comprehensive solution. A foundation is a nonprofit entity that can accept contributions from you and potentially from other family members. It provides the ability to distribute funds to multiple organizations or causes over time.
Although the cost of creating and operating a private foundation is significant, it can be worthwhile for those planning to donate substantial assets. A foundation also allows you to establish long-term guidelines for charitable giving and to involve children, grandchildren, and even later generations in the work. This hands-on experience can create a legacy of philanthropy, fostering values of generosity and civic responsibility across your family. At the same time, foundations can yield substantial tax benefits, including deductions for contributions and favorable treatment of capital gains on appreciated property.
Incorporating philanthropy into your California estate plan ensures that your legacy reflects not only what you have earned, but also what you believe in. By working with an experienced California estate planning attorney, you can create a customized plan that aligns with your values, maximizes available tax advantages, and secures the future of both your loved ones and the causes you care about most.
Can We Help You Incorporate Philanthropy into Your California Estate Plan?
For more information, please join us for an upcoming FREE seminar. If you would like assistance incorporating tools and strategies that support your philanthropic goals into your California estate plan, contact the experienced Los Angeles estate planning attorneys at Schomer Law Group APC by calling (310) 337-7696 to schedule an appointment.
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