Charitable Giving to Churches: A Strategic Tool in Estate Planning to Lower Taxes

Understanding Charitable Giving in Estate Planning

Charitable giving has long been a cornerstone of estate planning, offering a way to support meaningful causes while also providing significant tax benefits. One particularly effective strategy involves making charitable donations to your church. This article explores how incorporating charitable giving to churches into your estate plan can help lower taxes and achieve philanthropic goals.

Charitable giving in estate planning involves designating a portion of your estate to be donated to charitable organizations upon your death. These donations can take various forms, including cash, securities, real estate, or other assets. When structured properly, charitable giving can reduce the taxable value of your estate, thereby lowering estate taxes.

Tax Benefits of Charitable Giving

1. Estate Tax Deduction: Donations to qualified charitable organizations, including churches, are deductible from the gross estate. This means that the value of the charitable gift is subtracted from the total value of the estate before calculating estate taxes. For example, if an estate worth $10 million includes a $1 million donation to a church, the taxable estate is reduced to $9 million.
2. Income Tax Deduction: In addition to reducing estate taxes, charitable donations made during your lifetime can also provide income tax deductions. These deductions can be claimed for the year in which the donation is made, potentially lowering your overall tax liability.
3. Capital Gains Tax Avoidance: Donating appreciated assets, such as stocks or real estate, to a church can help avoid capital gains taxes. When these assets are donated, the donor does not have to pay capital gains tax on the appreciation, and the full market value of the asset can be deducted for income tax purposes.
4. Continuing Tithing Plan.  Many people tithe faithfully to their church throughout their life. Donating a tithe portion of the assets you have accumulated during life as a testamentary gift allows you to continue that tithing plan in keeping with your faith.

Strategies for Charitable Giving to Churches

1. Bequests in Revocable Living Trust: One of the simplest ways to include charitable giving in your estate plan is through a bequest in your trust. You can specify a fixed amount, a percentage of your estate, or specific assets to be donated to a church. This ensures that your charitable intentions are honored after your death.
2. Charitable Remainder Trusts (CRTs): A CRT allows you to donate assets to a trust, which then provides income to you or other beneficiaries for a specified period. After this period, the remaining assets in the trust are donated to the designated church. This strategy provides an immediate income tax deduction, potential capital gains tax avoidance, and a reduction in the taxable estate.
3. Charitable Lead Trusts (CLTs): A CLT works in the opposite manner of a CRT. The trust provides income to the church for a specified period, after which the remaining assets are transferred to your beneficiaries. This can reduce the taxable estate and provide a charitable deduction.
4. Donor-Advised Funds (DAFs): A DAF allows you to make a charitable contribution, receive an immediate tax deduction, and then recommend grants from the fund to specific charities, including churches, over time. This provides flexibility in managing your charitable giving and estate planning.

Considerations and Best Practices

1. Consult with Professionals: Estate planning involving charitable giving can be complex. It is essential to work with estate planning attorneys, financial advisors, and tax professionals to ensure that your plan is structured correctly and maximizes tax benefits.
2. Document Your Intentions: Clearly document your charitable intentions in your estate planning documents. This includes specifying the church, the type of donation, and any conditions or purposes for the gift.
3. Review and Update Regularly: Estate plans should be reviewed and updated regularly to reflect changes in your financial situation, tax laws, and charitable goals.

Conclusion

Incorporating charitable giving to churches into your estate plan is a powerful way to support your faith community while also achieving significant tax benefits. By understanding the available strategies and working with an attorney at Tyler Law, LLP, you can create a plan that fulfills your philanthropic goals and provides financial advantages for your estate and heirs.