Charitable Giving and Estate Planning: Maximizing Your Impact and Tax Benefits

Posted on September 15, 2024 by shieldsandboris

Providing support for a good cause is a wonderful way to leave a lasting impact. According to data cited by the National Philanthropic Trust (NP Trust), Americans donated nearly $560 billion to charitable organizations in 2023 alone. Similar to any other person, you undoubtedly want to get the absolute most out of your gift. At The Elder Law Offices of Shields & Boris, we provide solutions-focused support. Here, our Pennsylvania legacy protection attorneys provide a guide to charitable giving, including how to maximize your impact and access all available tax benefits.

Estate Planning and Charitable Gifts: Know the Strategies

If you are interested in leaving money, property, or other assets to support a good cause in Western Pennsylvania, it is crucial that you understand all of the potential options. With the right approach, you can maximize your impact—these means leaving more to the charity while minimizing your total tax burden. Here are some of the most notable estate planning strategies for charitable gifts:

  • Direct Cash or Property Donation: Charitable giving does not have to be complicated. Quite the contrary, a direct donation is one of the simplest and most straightforward ways to incorporate charitable giving into your estate plan. It is a method involving directly gifting cash or property to a charitable organization. In Pennsylvania, such donations can reduce the size of your taxable estate—potentially lowering your costs. You can use a will for a direct donation. However, it may not be the most tax-efficient strategy.
  • Donation of an Appreciated Asset: You can donate an “appreciated” asset in order to access some additional tax advantages. The donation of an asset—stocks, real estate, etc—that has increased in value since the purchase can be particularly tax-efficient. In Pennsylvania, donating an appreciated asset allows the donor to avoid paying capital gains tax on the increase in value. That is tax that would likely be required if the asset were sold. Beyond limiting capital gains tax exposure, the donor can receive a tax deduction based on the current market value of the asset. It is an attractive option for estate planning.
  • Setting Up a Charitable Trust: You may want to use a trust in order to facilitate your gift to charity. Doing so may save time, money, and maximize your gift while limiting your tax liability. Indeed, creating a charitable trust offers flexibility. There are primarily two types: Charitable Remainder Trusts (CRT) and Charitable Lead Trusts (CLT). A CRT allows you to receive income for a period from the trust before the remainder goes to your chosen charity, which can help maintain income during retirement. On the other hand, a CLT provides that income to the charity for a set period, after which the remaining assets revert to the donor or other beneficiaries. Both trusts offer tax benefits.
  • Creation of a Private Charitable Foundation: For people who are considering making a large, or somewhat complicated gift, it actually may be the best option to set up a private charitable foundation. To be clear, this is a more complex option that comes with more costs on the front-end. With that being said, it is a highly personalized way to provide support for a good cause and can allow you to exercise some control over who your assets are used. A private foundation establishing a separate legal entity to manage charitable activities and funding. For those with substantial assets, a private foundation in Pennsylvania allows significant control over the charitable endeavors supported, as well as over the investments and distribution of funds. Although administrative requirements and costs are higher, the tax benefits and personal satisfaction can be considerable.

What to Know About the Two Most Common Types of Charitable Trusts

Are you considering using a charitable trust in order to leave money or property to support a good cause in Pennsylvania? If so, it is important that you know that you have two main options available. The right choice for your specific situation will depend on some case-specific factors. You may want to set up:

  • Charitable Lead Trust: A charitable lead trust is an estate planning option that allows a person to donate assets to a charity for a specified period. The charity receives interest income from the trust while the grantor retains the principal. After the term ends the remaining assets revert to the donor or the pre-selected (designated) beneficiaries. The trust offers potential tax benefits, potentially including tax deductions and even an estate tax reduction. It may be the best choice for a person who wants to support a charity over time without permanently parting with any assets. Notably, a charitable lead trust can be a fixed trust or variable annuity trust. There is room for flexibility.
  • Charitable Remainder Trust: In contrast, a charitable remainder trust involves the transferring money, property, or assets into a trust and designating a charity—or multiple charities—as the ultimate beneficiary. The original donor—or other named beneficiaries will then receive income from the trust for a set term or for the rest of their life. Upon the termination of the trust, any and all of the remaining assets are donated to the specified charity. It is a type of trust that can provide income tax benefits through charitable deductions and can potentially reduce estate tax obligations. It is a way to secure a lifetime income while committing to a future charitable gift. As a general rule, it is the best option for a person who is looking to support charity while still getting income during their life.

We Help People and Families Prepare for Charitable Giving in Pennsylvania

At The Elder Law Offices of Shields & Boris, our Pennsylvania estate planning lawyers handle all types of charitable giving matters. Our team is adept in legacy planning and is proud to help people make the biggest possible impact. If you have any specific questions or concerns about charitable giving, please do not hesitate to call us at (724) 307-4464 or contact us online for your confidential initial appointment. We serve communities throughout Western Pennsylvania.



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