How to Leave Money to a Charity
Donating part or all of your estate to charity will not only benefit the charity but could reduce the amount of estate taxes your heirs have to pay on your estate. Here's how to do it.
- Difficulty:
- Moderately Easy
Instructions
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Deciding What, to Whom and How Much to Donate
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1
Determine which charity you want to support.
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2
Consult an attorney who specializes in wills and estate planning. He will advise you on the different ways to make your donation. For example, you could make an outright bequest, name a charity as the beneficiary on your retirement benefits or set up a charitable trust.
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3
Decide how much money you want to leave to the charity. This decision may be affected by the advice you receive from your lawyer and financial planner. If your estate is valued high enough to be taxed, a charitable donation may reduce the amount of taxes owed or decrease the value of your estate so no taxes are levied.
Bequesting Money
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1
Decide which type of bequest you will make: general or outright, specific, residuary or contingency.
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2
Decide how much money you will donate.
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3
Have your lawyer include your bequest in your will.
Naming a Charity as the Beneficiary of Your Retirement Benefits
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1
Decide whether you want to leave a percentage of money from your IRA or retirement plan to the charity, or if you want to leave the entire amount.
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2
Contact your IRA or retirement plan representative to make the appropriate changes to your beneficiary listings.
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3
Check with your attorney to see if you need to adjust your will to reflect the changes made to your IRA or retirement plan.
Creating a Charitable Trust
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1
Consult a financial planner or an accountant to determine which type of charitable trust to set up: a charitable remainder annuity trust (CRAT), a charitable remainder unitrust (CRUT), a pooled income fund or a charitable lead trust.
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2
Decide what the principal amount of the trust will be.
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3
Meet with your lawyer to have the provisions for your selected trust placed in your will or included as an addendum to it.
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1
Tips & Warnings
General or outright bequests state a specific dollar amount, or a percentage of your estate to be donated. A general or an outright bequest is generally made when the donation amount is small and you don't want to place specific restrictions on how the charity will use the money.
Specific requests idicate the specific purpose you want the money used for.
Residuary bequests are donations of the assets that remain a part of your estate after all other terms of your will are satisfied.
Contingency bequests name the charity as the beneficiary in the event that your heirs don't survive you.
Naming a charity as a beneficiary on an IRA or retirement plan can have major tax advantages for both your estate and the charity. The donation reduces the taxable amount of your estate, and the charity won't need to pay income tax on it.
The most common tend to be charitable remainder trusts and the charitable lead trust. Charitable trusts are an excellent way to protect your assets and pass them on to your heirs while minimizing the tax burden to your heirs.
A CRAT pays an annual amount to a non-charitable beneficiary for a fixed term, at the end of which the remainder goes to the charity.
A CRUT sets a percentage to payout annually to a non-charitable beneficiary for the life of the trust, at the end of which the charity receives the remaining money.
A charitable lead trust pays an annual amount to the charity for a fixed term, at the end of which the non-charitable beneficiaries receive the remainder.
