Charitable Giving in Estate PlanningWhether you have considerable assets or just a little bit to give, if supporting a charity during your lifetime or after you are gone is important to you, an Estate Planning attorney can help. There are many ways to donate to a cause—both now and in your Will—and it’s important to understand the tax implications and Medicaid eligibility considerations before you do anything.

If you would like charitable giving to be part of your legacy, find out how to make it happen and what to consider when choosing among your many options. For specific questions about your goals, schedule an appointment with an Estate Plan advisor sooner rather than later.

Charitable Giving and Medicaid Eligibility

If you think you will need to qualify for Medicaid to pay for long-term care in the future, then donating to charity could impact your eligibility. Charitable giving is not exempt from the five-year period Medicaid will look at to determine the value of your assets. In other words, if you donate money to a charity and then apply for Medicaid to pay for your nursing home within five years, the amount of the donation will count against you. The only exception would be if you put the money into a Special Needs Trust to care for a disabled child. If you think Medicaid is in your future, talk to an Elder Law attorney before you give any assets away.

Options for Charitable Giving Now and in Your Estate Plan

Writing a check to an organization or cause during an annual fund drive is one way to donate to charity, but there are other ways that could allow you to give more and benefit from tax breaks. Smart options include:

  • Qualified Charitable Distribution. Once you turn 72, you will be required to start withdrawing from and paying taxes on your tax-deferred retirement accounts, whether you need the money or not. For many people, these Required Minimum Distributions (RMD) put them in a higher tax bracket. If you are planning to support a charity anyway, you could choose to donate up to $100,000 of your RMD directly to a non-profit charity. You will meet your RMD, and the money will not be counted in your taxable income.
  • Charitable Remainder Trust (CRT). This type of Trust holds and invests your money and pays you in installments during your lifetime. It is taxable income, but upon your death, the remainder of the funds will go directly to the charity you named when you established the Trust. You can name the Trust as the beneficiary of retirement accounts and other assets. The CRT will receive the funds upon your death and will not owe income tax on the money, increasing the value of your donation.
  • Community Foundations. By creating your own charitable fund within an established community foundation, you can establish a financial legacy, take a tax deduction, and retain control over who gets your donation. In a Donor Advised Fund such as a community foundation, your money will grow tax-free, allowing you to increase the value of your donation.
  • Private Family Foundation. If you have significant assets to donate and wish to leave a lasting legacy, you might consider establishing a Private Family Foundation. The foundation would be managed by a board of directors and can last for generations.
  • Will bequests and beneficiary designations. The simplest way to include charitable giving in your Estate Plan is to name a charity in your Will. Once your Estate is probated, your Executor will make the donation in your name. You can also name charities as beneficiaries of life insurance policies and other accounts. It is always a good idea to discuss your plans with the charity you plan to support to find out the best way to make your donation happen.

Whether you have a lot or a little to give, you can get peace of mind that your wish to support a meaningful cause will be honored after your death by incorporating charitable giving into your Estate Plan. Our Estate Planning team will be able to explain all of your options and help you choose the giving option that will protect your Medicaid eligibility, provide you with the greatest tax advantage, and maximize the value of your legacy.

Kline Pillow
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Kline Pillow helps clients in TX and AR planning for the aging process with a specialty in Guardianship cases.
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