3 Ways to Designate a Charitable Contribution in Your Will

Are you interested in donating some of your assets to your favorite charity? A charitable contribution in your will is a great way to make this happen. However, there are a few key factors you should keep in mind before you put your wishes into action.

Cash is the most common asset given as a charitable contribution

When it comes to charitable giving, cash is often the first thing that pops into someone’s mind. However, there are more effective ways to give without putting your own wallet at risk. Here’s a quick guide to some of the best tax-friendly ways to give a leg up to your favorite charity.

The smallest of the big three, a 401(k) rollover to a qualified public charity is a great way to give without a tax bill to pay. Another option is a nontaxable distribution from your IRA. You can also make a donation to your church in a slam-dunk if you’re into the idea of helping others.

There are many other ways to give that you may not have considered. For instance, an estate tax planning strategy incorporating a charitable remainder trust may be your ticket to a lifetime of philanthropic fun. In fact, a planned giving consulting firm like the expert help you receive through Orbitwills.  We can help you formulate an appropriate charitable giving strategy for you and your loved ones. You could also consider donating your unused real estate in the form of a gift deed to your local synagogue, temple, church or other 501 (C)(3) organization.

The most exciting part of the whole exercise is that you get to choose which causes to support. For example, a philanthropist who is interested in supporting a cause in the health sciences could donate their unused stock to an organization that promotes the latest medical breakthroughs or if animal welfare is where your heart is there are many organizations who would put your charitable contribution to good use. 

Long-term assets can be a great way to incorporate charitable contributions into your estate plan

If you have long-term appreciated assets, such as stocks, bonds, and mutual funds, there are several ways to incorporate charitable giving into your estate plan. The first step is to discuss your options with a financial advisor. They will help you understand the advantages and disadvantages of each option.

Depending on your particular circumstances, a donor-advised fund or a charitable remainder trust are both good choices for incorporating charitable giving into your estate plan. These are tax-exempt organizations and will be able to receive your appreciated non-cash assets.

For example, your donation to a donor-advised fund will be eligible for a fair market value deduction. In addition, your assets will not be subject to capital gains tax when you liquidate them. This allows you to make more donations and increase your philanthropic impact.

Another way to utilize your long-term appreciated assets is to name your favorite charity as a beneficiary of a life insurance policy. This can also be done with a retirement account. When you do so, you can benefit from the tax benefits of naming a beneficiary and still have the peace of mind of knowing that you are making a difference.

Besides naming a charity as a beneficiary, you can also donate a specific amount or a percentage of your estate to your favorite nonprofit organization. You can name a single charity or a group of charities.

Tax implications of charitable contributions

Taking into consideration the tax implications of charitable giving in your will can help you receive more from your estate. Whether you are making a bequest to charity or you are leaving money to a friend, the tax advantages of giving may be significant.

The IRS allows you to deduct donations from your income taxes. However, some types of contributions face more restrictions than others. You will need to discuss your donation with a tax advisor to determine which contributions are best for you.

The IRS will only allow you to deduct charitable donations from your income if you itemize your deductions. If you do not itemize, you can only claim a deduction for the full cost basis of the donated asset. You will also need to subtract any benefit you received from your donation before deducting it.

Donations to charities can be made through cash, appreciated securities, and other noncash assets. You can donate to a charity directly or through a donor-advised fund. Using a donor-advised fund will allow you to give appreciated stocks and other assets to a charity while earning a tax advantage.

If you have appreciated long-term assets such as real estate, stocks, bonds, or mutual funds, you can include these assets in your charitable deductions. This can be an effective way to support your favorite charities.

The professionals at Orbitwills will be able to help you with any questions you might have about your will and charitable contributions. 

Published 12/19/2022.