When it comes to estate planning, most people focus on how to ensure their loved ones are taken care of. However, you may want to also consider charitable gifting, a tool that not only provides for causes you care about but also preserves wealth by reducing estate tax liability.
Charitable gifting refers to donating money or assets to a qualified charitable organization during your lifetime or through your estate plan. These gifts can include cash, stocks, real estate, personal property, or even the creation of charitable trusts or foundations.
Estate Tax Exemption
The current federal estate tax exemption is $13.99 million and in 2026 the exemption will be $15 million per person. Estates exceeding that value may be taxed at a 40% rate. However, the value of any assets gifted to a qualified charity is excluded from your taxable estate. That means the more you give to charity, the smaller your taxable estate becomes. That can translate into significant tax savings. For example, a $1 million bequest could potentially save $400,000 in estate taxes.
Lifetime Giving vs. Giving Upon Death
Giving to qualified charities during your lifetime allows you to see the impact of your generosity. Gifts made during lifetime are deductible from your income tax to the extent permitted. It is important to note that lifetime charitable gifts are not always 100% deductible. Check with your tax advisor before making large charitable contributions. On the other hand, gifts made after death to IRS-recognized 501(c)(3) organizations are 100% deductible for estate tax purposes.
Charitable Giving Strategies to Consider
1. Charitable Remainder Trust (CRT): A type of trust that provides you or your beneficiaries with income for a set time period, with the remainder going to charity after that time period. A Charitable Remainder Trust not only offers estate tax benefits, but may also offer income tax deductions.
2. Charitable Lead Trust (CLT): Think of this as the “reverse” of a Charitable Remainder Trust. A Charitable Lead Trust is a type of trust that provides that a charity receives income for a set time period, and then your beneficiaries receive the remainder of the trust property after the term ends.
3. Donor-Advised Fund (DAF): Donor-Advised Funds are accounts you can set up with various financial institutions. You get to take the applicable income tax deduction in the year you transfer money or other assets to the DAF, but you can defer choosing which charities will receive your donations until later. These funds allow you to reduce you’re the size of your taxable estate and therefore your estate tax liability now and decide on the charitable recipients later.
Charitable gifting is a win-win strategy in estate planning because it reduces your taxable estate while also supporting the causes that matter most to you, whether it’s education, environmental conservation, healthcare, or the arts. Giving can have an enduring impact long after you’re gone. Whether you’re just getting started or revisiting your estate plan, a qualified estate planning attorney can help tailor a strategy that fits your goals. Contact our team at Absolute Trust Counsel today to get started!
[AD] Estate planning addresses many important factors about your future and legacy. Where do you get started if you don’t have an estate plan in place? If you do, how have new laws and life transitions changed? Will your plan still protect you? Regardless, you deserve to have control over your wants, needs, goals, and hopes for the future. We can help you understand your options and, legally, how you will best be protected at all touchpoints. Get started today by scheduling a free discovery call so we can discuss your needs. Visit https://absolutetrustcounsel.com/scheduling/ or call us at (925) 943-2740.
