According to CNBC’s millionaire survey, 40% of people who have between $1 and $4.9 million in their estate give 1-10% of their estate to a charity. Charitable giving, also known as “planned giving,” is a way for you to give back to your community through an organization of your choosing. And you don’t have to be a millionaire to do it. You can give any percentage of your estate, even if it’s just 1% of a smaller estate, to your chosen charity. And there are so many benefits beyond just the feel-good of giving, like tax benefits. So, without further ado, let’s discuss how to work charitable giving into your estate plan.
What is estate planning?
Estate planning is a way for people to plan what happens to their stuff after they die and/or plan for certain medical, legal, and financial decisions if they become incapacitated. You can achieve estate planning by creating any, all, or a combination of the following documents:
- A will
- Trust(s)
- Living will
- Power of attorney
- Medical proxy
For example, you are “estate planning” if you create a will. You are also estate planning if you set up an advance healthcare directive (a medical proxy and a living will).
Methods for charitable giving in your estate plan
So, where does charitable giving fall in your estate plan? Well, you can select a charitable organization to be the beneficiary of your trust, will, retirement fund, and/or life insurance policy instead of having all of your stuff passed on to your friends/family. But how do you do that?
Here are some of the methods of charitable giving that you can accomplish through your estate plan:
- Make a charitable bequest in your will: You can specify in your will that a certain amount of your assets should go to a charity of your choice after you die.
- Establish a charitable trust: A more complex option is to create a charitable trust, which can provide ongoing support to your chosen charities while potentially offering tax benefits for you or your beneficiaries.
- Name a charity as a beneficiary of your life insurance policy: You can designate a charity as the beneficiary of your life insurance policy’s death benefit, providing them with a significant financial contribution after you pass.
- Donate your retirement account(s): Consider naming a charity as a beneficiary of your retirement accounts, such as your 401(k) or IRA. This can be a tax-efficient way to make a substantial gift.
How do I know which charitable giving method is best for me?
Whether you choose a will, trust, insurance policy, or retirement account will depend on your estate size and goals. Here are some examples of methods that may make sense for certain situations:
- If you simply want to give back a small percentage of your estate: A simple bequest in your will or living trust may be a good option. This is often the easiest and most straightforward way to leave a portion of your assets (a specific amount, percentage, or item) to a charity.
- If you want to reduce estate tax: Charitable remainder trust (CRT) is one option that allows you to donate assets while receiving an income stream for life, and the remainder goes to charity after your death, reducing your taxable estate.
- If you want to leave your home or other asset to a charity: Direct bequests to charity in your will, living trust, or a charitable remainder trust are options you can utilize.
- If you want to give it all away: You can donate everything to a charitable organization through a charitable trust that designates all your assets to go to charity, either immediately or after a specified period. You can also name a charity as the sole beneficiary of your will or living trust.
If you have other specific questions about which method of charitable giving is for you, you should consult with an estate planning attorney to discuss your options.
The tax benefits of charitable giving in your estate plan
What are some benefits of “planned giving” or charitable donations through your estate plan (besides the obvious)? Potentially decreasing and/or avoiding estate taxes. Here’s how it works. When you leave assets to a qualified charity in your will or through a trust, the value of those assets is deducted directly from your gross estate before estate taxes are calculated. This reduces the overall value of your estate, which is subject to taxation.
- Example: In 2025, the threshold for federal estate tax is $13.9 million. If your estate is over that amount, you are subject to a tax. To avoid the tax, you can donate a significant amount to a qualified charitable fund to reduce your estate to under the threshold ($13.8 mil or lower) and avoid the federal tax.
Can I leave something other than money to a charity, such as a house?
Yes! Generally, this is definitely something you can do. When the organization receives the house, it will likely sell and liquidate the home or donate it to someone in need (depending on the type of charity they are, of course). You can donate a house to a charity through a will and/or a trust. If you have a preference for how the house is to be managed (sold or donated or something else), you may want to consider a trust to provide specific instructions to the charity.
Examples of qualified charities
If you’re wondering how you can find one of the charities that are tax-exempt and can help you avoid or minimize estate taxes, you can do so directly through the IRS’ website here. Some examples of qualified charities include:
- Goodwill
- Planned Parenthood
- American Humane Society
- Feeding America
- Salvation Army
- Homes For Our Troops
There are hundreds, so you’re not limited to the above list, it’s just an example of some of the more common charities people choose from.
The bottom line
Estate planning and charitable giving go hand in hand. Not only can it be a way to minimize taxes, but it’s also a great way to give back if you have the means. Just make sure you choose a qualified charity, such as Planned Parenthood. You’ll also need to choose your method of distribution, whether through a will, trust, life insurance policy, or retirement fund. Any of these are great ways to get the job done. Which method is for you will depend on your estate size and goals.
Sara is a bilingual Spanish-speaking attorney and legal advisor from Orange County, CA. Sara is the co-founder of Ovando Bowen LLP, along with her husband Chumahan Bowen, Esq. As a legal advisor, Sara helps her clients navigate the complexities of both business and personal affairs. Sara has been assisting individuals and families since 2009 when she worked at the Long Beach Courthouse, Self-Help Center. Book a Q&A or Full Representation with Sara here
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