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When Your Final Wishes Include a Charitable Donation

Last Will And Testament

Americans are charitable people. In 2017, charities received over $410 billion from donors in the United States. Many donors want to continue honoring the charities they supported in life with a final gift after they pass away. Anyone considering this type of action should understand what they need to do to guarantee the money goes to the organization as intended.

Use a Will

You can leave a gift to a charity or to several groups in a will. The attorney preparing the document keeps a copy of the will to prevent confusion if the family cannot find a copy at home. Choose a reliable person to act as the executor to guarantee fulfillment of the wishes in the document. A gift can be given in a couple of different ways to a charity with the help of a will.

Many people leave a specified amount of money to a certain charity or to a specific endeavor they supported. Another possibility is to choose an amount for each heir listed in the will and request that the charity receives the residual estate.

It is possible that family members could contest a will and try to reduce or cut the charitable gift. The effort is usually unsuccessful if the will followed legal guidelines and the deceased was in sound mind when they prepared the document. The will may be changed if the family can prove undue influence by a representative of the charity on a vulnerable person.

Establish a Trust

Charitable trusts can be either a remainder or lead trust. A remainder trust allows the charity to control the assets and keep the interest earned from those assets for a length of time. Once the pre-established time ends, the charity gains ownership of the assets.

A lead trust puts the donor in control and allows them to keep or divide the interest as they wish. The assets do not go to the charity after the death of the donor, but rather to their heirs or to other beneficiaries according to the donor's wishes. The donor can also choose to list the charity as a beneficiary.

Both trusts give tax breaks to the donor while they are alive and to the heirs after the donor dies. The government only taxes the revenue earned on the assets in trusts. Another benefit that all trusts offer is privacy because they do not become public record after a death like a will.

Gift Your Retirement

The balance of an IRA left to a charity after the owner of the fund dies is exempt from estate and income taxes. List the charity as the beneficiary so the money does not have to go through the probate process.  It is also possible to leave any remaining balance in a health savings account (HSA) to a charity by listing them as the beneficiary. 

Protect Your Wishes

Sometimes charities close before the donor passes away. Continue to monitor the organizations you have chosen as beneficiaries to enable you to select another if this occurs. The law does offer solutions in situations where the donor was unaware of the closure or if the charity shuts its doors while a will is in probate.

For example, cy pres is a legal process that allows a judge to choose an alternate charity if the intended one is no longer in existence. The court will pick one or more charities that support the same types of causes as the original preference.

Each gift method offers different benefits for the donor and the recipient. The complexities of tax laws and how trusts work can become very confusing. At Hassen & Associates, we can help you to find the solution that has the most benefits for you and your favorite charity. Contact us to schedule an appointment to begin or to update your estate planning.