Charitable Estate Planning

Charitable Estate Planning is the process of including gifts to charity in your Estate Plan. By making charitable gifts during your life or in your Will or Trust, you can significantly reduce both your income tax bill, as well as your taxable estate.

To understand how such gifts can help you with your estate plan, you should understand how the Estate and Gift Tax system operates and why you should consider developing an Estate Plan.

The IRS taxes you on property that you give away. If you give the property away during your life, the IRS imposes a Gift Tax. If you give it away at death, the IRS imposes an Estate Tax. Either way, without proper planning the net amount of property ultimately transferring to your heirs can be significantly reduced by taxes. However there are several tax saving techniques that are available to you.

Generally speaking, as of the year 2002, each U.S. Citizen may give or bequeath up to $1,000,000 of money or property without having to pay any estate tax. (This amount is indexed and is scheduled to increase to $3,500,000 by the year 2009).

By using a trust in your estate plan, each individual can utilize this full exemption. For example, without a trust, if an individual left all of his or her property to his or her spouse, there would be no estate tax (assuming that the spouse is a US Citizen) however upon the death of the second spouse, his or her estate would be subject to estate tax and only one $1,000,000 exemption would be available.

If you have a properly drafted marital trust, the property of the first spouse to die can be placed in a trust for the surviving spouse's benefit, and excluded from estate tax on both the first and second death. By using such a trust, a married couple can save hundreds of thousands of dollars in estate taxes.

There are many other Family Wealth Transfer techniques that can be included in your estate plan, such as:

In certain circumstances there can be substantial estate and gift tax savings when you make gifts to charities. However, very rarely will a gift to charity result in more net money to your children. But several charitable gifts can work very well in your plan, significantly benefit your favorite charities, and not seriously impact your family.

Typically the total dollar amount that goes to your family is not increased by a charitable gift. Instead, the tax savings (the amount that would have been paid to the IRS) is received by your designated Charity.

The following are types of charitable gifts: