Our New York estate planning attorneys have spent decades helping local families make long-term preparations for their estate. Legal and tax rules must be accounted for in all significant property transactions, even when one is giving money away. As a Wall Street Journal story this weekend explained, it can actually be quite challenging to properly plan for a charitable gift. If professionals are consulted, residents can often leave money in ways that provide significant tax breaks, particularly if they account for the ever-changing estate tax rules.
When conducting New York inheritance planning, many community members indicate an interest in leaving assets to support a favorite cause, like helping the less fortunate or nursing the arts. When the gift is made at death it is known as a “bequest.” A bequest lowers the money subject to estate taxes; however, donors cannot enjoy an income tax deduction for the gift if it is made at the time of death. If a gift is given while the individual is alive then an income tax deduction can be taken. Yet, lifetime charitable gifts are irrevocable and an individual cannot change their mind about the donation as they might be able to if they were planning a bequest.
Of course, many residents leave funds to charity for reasons beyond taxes, but there is no reason why community members should not take stock of the tax consequences when planning to give money to these causes. In 2010, the year when there was no federal estate tax, charitable bequests increased by nearly 17%. That year donations totaled just shy of $23 billion nationwide according to information published by the Giving USA Foundation.
The New York estate planners at our firm know that there are many ways provide money to favorite non-profit causes. For example, part or all of an individual retirement account can be given to charity by designating it as a beneficiary. In addition, it is often helpful to use special legal tools like charitable remainder trusts to support a cause after death while generating an income stream while still alive. They are helpful for those who are eager to help the charity but have concerns about maintaining cash flow. The basic idea behind these trusts is that assets are set aside in trust with income paid to the donor (or family) for a set number of years or until the donor dies. At that point the remaining money goes to the designated charity. When using these trusts the donor may also be able to receive a tax deduction up front for the expected donation.
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