Smart & Easy Ways to Leave Gifts to Charity

When people hear “planned giving” or “estate giving” to charity, they think yikes – complexity – CRTs and other acronyms – lawyers!

But leaving a gift to a charity doesn’t have to be complicated.

We’ve provided sample approaches in the Smart & Easy Scorecard below, ranked in declining order of combined “smart” and “easy” stars.

Smart & Easy Scorecard

About the Scorecard

Deferred income assets: IRAs, retirement plans, deferred annuities and U.S. Savings Bonds purchased at a discount (## 1, 2 and 3) are what we’re calling deferred income assets. Each contains income that has never been taxed.

When choosing which assets to leave to which heirs, think of charities first for these assets. No one will benefit more:

• Charities won’t pay income taxes on payouts from these assets.
• Individual beneficiaries will pay income taxes on those payouts, at their individual rates.

An example: Let’s say you have a $100,000 IRA and other assets to leave in your estate, and you’d like to help both your son Bill and your favorite charity. Bill is in the combined 35% tax bracket (federal and state income taxes). As shown in the following table, your favorite charity will benefit 100% from the donation of your IRA (but Bill only 65%). Give the IRA to the charity, your other assets to Bill.

Changing your mind during lifetime: Each of the arrangements allows the donor the flexibility of changing his or her mind during lifetime. The donor can  do that directly, or (if the donor becomes incapacitated) an agent can do it for the donor using a financial power of attorney. And the charity has no rights to the asset during the donor’s lifetime.

Estate tax deduction: Although few estates are taxable under current estate tax laws, gifts to charities are normally 100% deductible for estate tax purposes.

Easy to set up: The “Tool” column briefly describes the mechanics.

• Giving an IRA, retirement plan, or deferred annuity to a charity is accomplished by beneficiary naming — you name the charity as a beneficiary (primary or contingent) using the plan provider’s forms.
• Brokerage and mutual fund accounts can be given to a charity using a transfer on death arrangement — similar to naming a beneficiary. Not all brokerage and mutual fund firms provide transfer on death arrangements — check with the firm first.
• Bank accounts can be given using a pay on death arrangement — also similar to beneficiary naming. A bank might refer to this as an “in trust for” or “Totten Trust” or “beneficiary” arrangement. Check with the bank’s new accounts specialist.
• Beneficiary naming, transfer on death arrangements and pay on death arrangements (## 1, 2, 4, 5 and 6) are usually simple and inexpensive to accomplish.
• Giving U.S. Savings Bond and most other assets to a charity is accomplished by designating it to received them under a will or trust.
• Do not make the charity a lifetime co-owner or pay on death beneficiary of U.S. Savings Bonds purchased at a discount.
• Creating a well-crafted will or trust typically involves time and expense. If the donor already has a will or trust, adding the charity can be easy and inexpensive to accomplish.

Learn more: 13 Steps to Boost Your Donor Impact – free guide.