Charitable Giving in Succession Planning

We recently posted a series of articles on estate and succession planning.  We are going to highlight a few throughout the next few months through blog posts and today, we start with charitable giving.

Charitable giving is a portion of many estate plans, for many reasons.  For some, the sole purpose is charitable while for others, there may be both a charitable purposes and advantageous tax treatment.

For estate planning purposes, any amount given to a qualified charity is deductible.  Thus, a person with a $10 million estate could transfer $5.43 million to his or her heirs and the remainder to charity, thus avoiding the payment of estate taxes.  The charitable deduction for estate tax purposes is unlimited.

The charitable deduction for income tax purposes, however, is not unlimited.  Various rules apply and it is best to consult with your accountant to explore the scenarios.  This blog post is merely to discuss some of the legal rules and encourage you to read the entire charitable giving article!

Generally, (and again, speak with your accountant), the limitations depend upon: (1) whether the giving is to a public or private charity, (2) the type of property being given, and (3) whether or not the donor is an individual or corporation.  Again, generally, an individual may take a charitable deduction for income tax purposes of up to 50% of the donor’s adjusted gross income.

To determine if your selected charity is an eligible recipient, the IRS maintains a list.  There are some other requirements, found in Section 2055 of the Internal Revenue Code, but generally, if your charitable contribution is to a political entity (e.g. United States, a state, political subdivision), non-profit (including fraternal societies, orders, and lodge system), or veterans’ organization incorporated by Act of Congress, the charitable gift is to an eligible entity.

Charitable gifts may be outright, such as a contribution to an alumni fund or the collection plate at church, or a partial interest in property, such as retaining a life estate in donated agricultural land.  If you wish to retain a partial interest in the property, you will need to explore more sophisticated planning options such as charitable lead trusts, charitable remainder trusts, gift annuities, and in certain instances for farm land and residences, a life estate.

We encourage you to read the Charitable Giving article and contact us if you have any questions!


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