Cancer research, animal rescue, child welfare — these are just a few of the important causes for which charities carry out vital work in our communities. For many people, donating to charities is a wonderful way to give back in the here and now. While others also plan to include gifts to nonprofits in their estate plans, providing sustaining financial support for the causes they love even after they are gone.

Remembering charities in your estate planning not only benefits the causes you support — it may provide significant tax benefits to both you and your beneficiaries.

Let’s examine five different ways you can support charitable causes — and potentially leave a lasting legacy through your estate plan.

1. Designate a charity as a beneficiary in your will

Perhaps the simplest way to earmark a portion (or all) of your estate for a particular charity is to name them directly in your will.

Before you make that move, however, it’s worthwhile to:

• Research the charity to ensure it has the resources and reputation to steward your gift well, especially if it’s sizable ($10,000+ or the equivalent).
• Discuss with a representative of the organization (e.g., executive director or head of philanthropy) how your potential gift might be used and recognized. (Yes, you may choose to remain anonymous, but many people understandably opt for recognition as part of their public legacy.)
• Consider sharing your plans with your other heirs, too, so that they may better understand your goals for the gift.
• Meet with your attorney, executor and any other relevant estate planning professionals to ensure every document and entity is in alignment with your wishes. (This is a good time to provide the charity’s address and contact information, too.)
• Confirm your plans with the designated charity along with any details regarding who will contact them when it comes time to execute your last wishes.

2. Establish a charitable trust

Many individuals use trusts to assign assets and designate beneficiaries as part of their estate planning process. This can be an especially helpful strategy in instances where large amounts of money or assets will be distributed. But did you know that there are many types of trusts, including charitable trusts?¹

This type of trust can be set up to benefit multiple beneficiaries. For example, a charitable remainder trust² allows trust income to be paid to a beneficiary for a specific time frame, with the remaining principal then going to charity. Meanwhile, a charitable lead trust³ can be arranged to pay the designated charity for a specific time frame — with the remainder of the trust principal then going to your family.

Establishing a charitable trust may offer the benefit of a lower tax burden⁴ — not only for you but your beneficiaries. To better grasp if this option might be right for you, talk with an attorney and any other potentially relevant members of your personal estate planning team, which may include your financial advisor and designated trust officer.

3. Make a direct bequest from a pension or Individual Retirement Account (IRA)

If your estate includes a pension or a retirement account, you can list a charity as a beneficiary⁵ of those funds. This gift can provide the charity with additional funds as they will not have to pay income taxes on this revenue, whereas any individuals named as beneficiaries of pension or retirement account funds will have to pay income tax. (Again, it makes sense to have a conversation with the charity in advance, to ensure they’re ready and able to make best use of your gift.)

To support a charity with a direct bequest, contact your investments program or financial institution directly to include the charity's name in your beneficiary documentation.

»Tip: Most IRA beneficiaries⁶ now must withdraw all funds from the account within 10 years of the account holder's death. It’s just one more reason to ensure alignment between your charity of choice and your estate planning team.

4. Select specific assets to donate

If your estate's assets include real estate, stocks, art, antiques, collectible cars, jewelry or any other valuables, you may opt to bequeath them to the charity of your choice.

One benefit of this approach is that you might avoid capital gains taxes while also receiving a tax deduction for the full value⁷ of whichever asset you are donating. Be sure to explore any possible tax impacts with a tax attorney or CPA before making any legal commitments. And, before choosing to donate your non-cash assets, be sure to have the asset appraised so you know the value of the donated property.⁸

5. Direct assets of a donor-advised fund to charity through a succession plan

Many charitable donations are made from donor-advised funds⁹ (DAFs) — money placed in a private account with a fund manager who directs which nonprofits and charities will benefit. DAFs may be privately held but are often established at a public charity (e.g., San Antonio Area Foundation, the Austin Area Foundation and the Greater Houston Community Foundation).

Although some DAFs have exemptions on what assets can be accepted, they typically include:

• Cash
• Life insurance policies
• Retirement account funds
• Shares of publicly traded stocks, bonds and mutual funds
• Shares in privately held businesses

While DAFs are established when its investor is living, a succession plan for the fund can be included during your overall estate plan. The remaining funds can go to your heirs or to designated charities. You may even separate the funds to benefit several different individuals or organizations.

The takeaway

Charitable giving helps the causes you support and may be beneficial to your estate. Determine the reputable organizations you’d like to assist. Then, consider the best way to benefit those causes through your estate plan.

Are you curious to learn more about how you can leave a legacy? Between our in-house RBFCU Trust Services staff and network comprised of attorneys, wealth managers and tax professionals, we’re here to help you advance that goal in your lifetime.