Ok, as you know, when you make donations to a qualified charity during your lifetime, those donations are generally tax deductible. But you may be surprised to learn that dedicating a portion of your estate to a charitable cause can reduce the taxable value of your estate.

Here are three of the most popular ways to structure charitable giving into your estate plan.

1. Leave Money To Charity In Your Will Or Revocable Living Trust

One of the simplest ways to donate to charity in your estate plan is to name a charity as the beneficiary in either your will or revocable living trust. Just make certain when you leave money via your will or living trust that you use the correct legal name of the charity, as many charities have very similar names, and if you aren’t specific, the charity may have difficulty getting the money you left for them.

In either your will or living trust, you can also state the purpose for which you’d like the charity to use the funds, or you can make the donation for the charity’s “general purpose,” meaning the charity can use the funds as it sees fit. If you choose to leave money for a specific purpose, just make sure that the charity can actually fulfill that purpose or the charity might have to refuse the gift.

Keep in mind that if you leave money to charity in your will, your will must first go through the court process of probate before the charity can access the funds after you die, which can be very long and expensive. On the other hand, donations to charity made via a trust would pass to the charity immediately after you die without any probate court being necessary.

Leaving money to charity in your will or living trust can reduce the taxable value of your estate and reduce estate tax liability for your heirs. But, there is no state government estate tax in Ohio or Florida and the current federal estate tax exemption is $11.7 million for individuals and and 23.16 million for married couples, so unless you’re a part of the high net worth echelon in society, you won’t see any federal estate tax benefit since you don’t have estate tax liability at this point. But we know estate tax exemption amounts change a lot over the years so you really should be working with an estate planning attorney that has a system for keeping in touch with you to ensure your plan is being maintained throughout time and keeping pace with the changes in the laws.

2. Name A Charity as the Beneficiary of Your Retirement Account 

Another easy way to incorporate charitable giving into your estate plan is to name a charity as the beneficiary of a percentage of your tax-deferred retirement accounts (like your IRA, 401(k), 403(b), etc.).

Any person you name as beneficiaries of your retirement accounts will have to pay income taxes on any distributions they receive from those accounts. But since charities are tax-exempt, charitable organizations named as beneficiaries will receive the full amount of your retirement account assets, tax-free. Additionally, though you need to include the value of the retirement account assets as part of the gross value of your estate, you will receive a tax deduction for the charitable contribution, which can offset estate taxes.

Finally, under recent changes to the SECURE Act, most beneficiaries of IRAs now must withdraw all funds from the retirement account within 10 years of the account holder’s death, which eliminates the ability of most individual beneficiaries to stretch out retirement account distributions over time and compresses income tax payments into a much shorter period. Those who fail to withdraw funds within the 10-year window face a 50% tax penalty on the assets remaining in the account.

Yet, because charities don’t pay income taxes, it may be more beneficial from a tax-saving perspective to leave your retirement assets to charity, while passing on your non-retirement assets to your loved ones. However, the SECURE ACT does offer exemptions to the mandatory 10-year withdrawal rule for certain beneficiaries, including a spouse, minor children, and disabled or chronically ill individuals. Given this, you should consult with us, as your Personal Family Lawyer, to determine the most beneficial option for passing on your retirement account assets.

3. Set Up a Charitable Remainder Trust

One final way to structure charitable giving into your estate plan is by creating a special trust known as a Charitable Remainder Trust (CRT). If you have highly appreciated assets like stock and real estate you wish to sell, you can use a CRT to avoid income and estate taxes—all while creating a lifetime income stream for yourself or your family and supporting your favorite charity.

A CRT is a “split-interest” trust, meaning it provides financial benefits to both the charity and a non-charitable beneficiary. With CRTs, the non-charitable beneficiary—you, your child, spouse, or another heir—receives annual income from the trust, and whatever assets “remain” at the end of your lifetime (or a fixed period up to 20 years), pass to the named charity or charities.

When you set up a CRT, you name a trustee, an income beneficiary, and a charitable beneficiary. The trustee will sell, manage, and invest the trust’s assets to produce income that’s paid to you or another beneficiary. The trustee can be yourself, a charity, another person, or a third-party entity.

With the CRT set up, you transfer your appreciated assets into the trust, and the trustee sells it. Normally, this would generate capital gains taxes, but instead, you get a charitable deduction for the donation and face no capital gains when the assets are sold. Once the appreciated assets are sold, the proceeds (which haven’t been taxed) are invested to produce income.

As long as it remains in the trust, the income isn’t subject to taxes, so you’re earning even more on pre-tax dollars. And when the trust assets finally pass to the charity, that donation won’t be subject to estate or income taxes.

Because CRTs come with very specific and complex requirements surrounding their creation, operation, and the responsibilities of the trustee, it’s vital that you consult with us, an estate planning firm, if you are considering setting up a CRT.

Enlist Our Support

Although these three methods for structuring charitable donations into your estate plan are among the most popular, there may be other options available. Meet with us, an estate planning firm, to determine the best way to achieve your charitable objectives while maximizing your tax-saving and other financial benefits. Schedule an appointment with us today to learn more.


This article is a service of estate planning attorney Elliott Feldman and the Elliott Feldman Law Group. We do not just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Prosperity Planning Session, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Prosperity Planning Session and mention this article to find out how to get this $750 planning session at no charge.