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How Charitable Giving Can Enhance Estate Planning: Advice for Financial Planners

Updated: Jun 24

One of our primary focuses at Cook Tillman Law is helping financial planners create suitable estate plans for their clients by educating them about various tools they can use to realize their client’s goals. Charitable giving can be a meaningful and strategic component of estate planning. Here are some key points to consider when incorporating charitable giving into your client’s estate plan.

Implementing Charitable Giving For Clients

It's important to ensure that charitable giving is used thoughtfully and at the right time. While charitable giving can be a goal to keep in mind, it should be addressed after the family and intended beneficiaries are taken care of. Here are some ways charitable giving can help shape a family’s estate plan and legacy after losing a loved one. 

1. Tax Benefits:

  • Estate Tax Deductions: Charitable bequests and donations at death can reduce the taxable value of the client’s estate, potentially lowering estate taxes.

  • Income Tax Deductions: Contributions to qualifying charitable organizations during a client’s lifetime can result in income tax deductions, especially if the client itemizes deductions on their tax return. 

2. Long-Term Impact: It is essential to have conversations with clients about the impact they want their charitable giving to have. Clients often engage in philanthropy to create a legacy that reflects their values and beliefs. Proper planning can help foster charitable giving in the next generation. Some families may set up a donor-advised fund (DAF) and have their children and other descendants influence where the money goes. In contrast, other families may establish a charitable foundation in their name. 

Charitable Giving Strategies

After you and your clients discuss how charitable giving can shape their estate plan and legacy, you can create a plan for achieving their charitable goals. 

1. Identify Your Charitable Goals: Start by clarifying your client’s charitable objectives. Do they want to support specific causes, organizations, or communities? Are there particular issues or initiatives they are passionate about? These questions can serve as the framework for a client’s charitable legacy. 

2. Choose the Right Charitable Vehicles: There are various ways to give to charity in estate planning, such as:

  • Direct Bequests: Leaving a specific amount or percentage of your estate to one or more charities in a will.

  • Donor-Advised Funds (DAFs): A DAF is a tax-exempt fund set up by a financial institution serving as the fund’s sponsoring organization. Contributions are made directly to the fund, and the tax deductions are recognized the same year the gift is made. Donors can then make recommendations for distributions from the fund throughout their lifetime. 

  • Charitable Foundations: A family may choose to set up a private 501(c)(3) foundation, which functions similarly to a DAF while offering more control over the use of charitable funds. However, the additional cost of creation and administration make foundations suitable for higher net worth clients.

  • Charitable Trusts: Establishing charitable trusts can provide income to beneficiaries while supporting charitable causes. Here are a few ways this can be set up:

Charitable Annuity Trust: The trust's funds are paid to a charity over a number of years, and then the remaining balance can be paid to a non-charitable beneficiary. 

Charitable Remainder Trust: Clients enjoying an abnormally high income year can contribute money to the trust, which pays out to an individual for a certain number of years. Since the balance is given to charity at the end of the trust term, the present value of the future gift is tax deductible in the year of contribution to the trust. 

Charitable Lead Trust: Estate plans of families with taxable estates may provide for the creation of a charitable lead trust upon the death of a surviving spouse, which will be funded with any amounts that exceed the estate tax exemption at that time. The trust's initial principal, together with a statutory amount of interest, are paid to a charity annually over the trust term, with the remaining balance being paid to non-charitable beneficiaries such as the client’s children. When set up properly, the charitable deduction can reduce the client’s estate tax liability to zero.

3. Consult with Professionals: Working with estate planning attorneys and tax experts can ensure your client’s charitable giving aligns with their overall estate plan and financial goals. They can help you navigate legal and tax complexities while maximizing the benefits of clients’ charitable contributions.

Cook Tillman Law is dedicated to providing insight into estate planning. We encourage financial planners to reach out with any questions about charitable giving. We can be contacted at (615)-370 2444 or contact us here. We look forward to working with you soon! 


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