Florida Estate Planning: Make Charitable Giving Part of Your Plan

One of the great benefits of living in the state of Florida is that it does not have estate taxes. However, once certain exemption limits are reached federal estate taxes come into play where charitable giving and charitable trusts can have a major impact on how much your heirs will actually receive after taxes. Most importantly, it defines what type of lasting legacy you leave your family, your community, and the values and causes you care about most passionately!

Many people prefer to give money to charity where they feel they have greater control over how their money is spent than to the government in the form of taxes. Involving your family members to become involved in charitable giving can strengthen family bonds by creating a tradition of giving that can be expected to last far longer into their lifetime than your own.

One reason estate planning is so important is that if you don’t take the right steps to protect your wealth, the government will intervene and take care of it for you. In most cases, which will be more expensive for your heirs in terms of money lost to taxes and lawyers, stress, and the potential for conflict between family members.

While charitable gifts that are bequeathed in a will take effect after your death, the great advantages of setting up charitable trusts is that you can see the benefits of your giving while you are still alive and create immediate income tax benefits during your lifetime. Capital gains taxes are avoided when appreciated assets like stocks are donated, maximizing their value and impact.

Far beyond any tax or financial benefits, most people want to feel they are doing the right thing which makes charitable giving such a soul satisfying endeavor. But by most measures, it’s a complicated process requiring professional help to insure full legal and tax compliance.

 What is Charitable Giving?

 Charitable giving is something that is gifted as opposed to an investment where a financial return is expected. A wide range of tax benefits become available when gifts are made to IRS qualified organizations that are “nonprofit groups that are religious, charitable, educational, scientific, or literary in purpose, or that work to prevent cruelty to children or animals.”

Charitable giving can be cash or property such as stocks, real estate, automobiles, or life insurance policies and IRAs to name a few. There are several methods to provide for charitable giving in your estate planning, each with its own advantages or flexibility.

Charitable Giving in Your Will

 Specifying charitable giving in your will is usually the simplest way to specify your wishes of how you would like your assets directed after your death and is less time consuming than setting up charitable trust.  You can designate a specific amount, a percentage of your estate, or particular assets such as stocks or real estate to an IRS designated charitable organization in your will or trust.

The two biggest disadvantages of wills are that you don’t get to see the benefits of your giving while you are still alive because wills are distributed upon your death.  The other disadvantage of wills is probate.

Any assets bequeathed in a will are subject to probate in Florida where interested parties like disappointed relatives can challenge the terms of the will. Even when these court challenges do not prevail, they are expensive in both time and legal fees that drain the value of the inheritance to the rightful heirs.

For these reasons a good Florida estate planner and attorney will usually recommend setting up one of a variety of charitable trusts for the tax advantages they make possible, to provide immediate tax benefits before death, and to avoid probate.

Beyond bottom line dollar amounts, establishing a charitable trust gives you the personal satisfaction of seeing your loved ones and most important causes gaining the maximum benefits of your legacy.

The two most common types of trusts as part of your estate planning are Charitable Remainder Trusts, and Charitable Leads Trusts.

Charitable Remainder Trusts

 Charitable Remainder Trusts or CRTs makes distributions to two sets of recipients. One is a lifetime income beneficiary - which can be you or a family member - and a charity.

The lifetime income beneficiary receives specified payments for a set period of time known as the trust term. The trust term can be up to 20 years, or when you pass away. What is left over after this term is then donated to the named charity or charities.

This has the effect of providing the donor with a guaranteed income for life. It also enables immediate income tax deductions while they are still alive. It lowers estate taxes upon the donor’s death while supporting a charity or charities of their choice.

Charitable Leads Trust

A Charitable Leads Trust or CLT is in many ways the opposite of a Charitable Remainder Trust. It sets up a structured giving plan that provides income to charities for a set term or your death, with the remainder then being dispersed to your heirs.

This can be a way of being an ongoing donor to charities during your lifetime while still retaining assets for your heirs after your death. It has both significant tax advantages while you are living, as well as the ability to see the impact of your giving while you are still alive.

Comparison of Charitable Remainder Trust vs Charitable Leads Trust

Both Charitable Remainder Trusts and Charitable Leads Trusts are irrevocable, meaning they cannot be changed after they are set up.

The main difference between the two is that with a Charitable Remainder Trust the charities get the money after the term, or your death. Whereas with the Charitable Leads Trust the charities get the assets during the trust term, and the heirs get what is left over after the term, or the donor’s death.

Generally speaking, a Charitable Leads Trust has more benefits from gift and estate taxes compared to a Charitable Remainder Trust.

These are the two most popular types of trusts, but there are still other options to make charitable giving part of your estate plan including Donor-Advised Funds and Private Foundations.

Donor-Advised Fund

 Donor-Advised Funds or DAFs are managed funds the donor contributes to that enable you to recommend tax-deductible grants to charities of your choice over time. They have several advantages including allowing someone to make a contribution to this fund and receive an immediate tax benefit while postponing the decision as to how the money is actually going to be given to a later date.

Donor-Advised Funds are relatively simple to set up. Requirements vary with different DAFs, but City National Bank for example only requires a $25,000 sum to establish, can usually be set up in a day or less with no fees. The money is given to a fund manager who vets the funding decisions of the donor and in the overwhelming majority of instances approves the donor’s choices unless any legal issues emerge regarding IRS qualifications as a charity.

All the administrative details of the grant are handled by the DAF. Awards can be given as frequently or infrequently as the donor wants, but the tax benefits are achieved immediately.

Assets contributed to a DAF can grow tax free and gains are not subject to capital gains taxes. The balances in your DAF are not considered part of your estate and so are not taxed as estate taxes.

Another advantage of DAFs is they allow the donor to remain anonymous. While the donation is given to a fund with a manager for approval and so some loss of control is given, the protection of the donor’s privacy for many can be a determining factor.

Private Foundations

Establishing a private foundation for charitable giving is another option that usually requires a larger contribution of $2,000,000 or more and is more complicated to set-up and administer. One benefit of a private foundation is you have 100% control over the giving.

It requires an attorney to do the paperwork and make sure it is prepared and submitted correctly, a board which you are allowed to select, and an annual meeting with recorded minutes of that meeting approving funding decisions.

Some families find this an excellent way to establish a tradition of giving and involvement of the whole family because the foundation board is required to meet once a year to approve funding decisions. Family members can also be hired to run the foundation.

Comparison of Donor-Assisted Funds Vs Private Foundation

There are several tax implications of DAF vs private foundations, with the tax efficiency of each that can depend upon the level of giving.

Using a DAF you can make cash contributions up to 60% of your adjusted gross income. For illiquid assets like real estate the limit is 30%.

Tax deductions for private foundations are more limited with cash contributions up to 30% of your adjusted gross income, and 20% for other types of assets.

While you have 100% control of grants from a private foundation, all awards must be made public record which makes anonymous gifts not possible.

Types of Charitable Contributions

 Contributions to charitable giving can take several forms. Including cash, appreciated stocks, retirement accounts such as IRAs or 401ks and life insurance policies. Or they can be non-cash contributions that can include things like real estate, vehicles, jewelry, collectables and much more. These different types of charitable contributions are subject to different donation limits depending upon the type of contribution and the structure of the giving such as a will, a trust, a donor-advised fund or private foundation.

Cash and appreciated stocks are probably the most common forms of charitable giving. IRAs and 401ks are another common way that charitable contributions are made that have several advantages.

Federal law allows you to make up to $105,000 per year in charitable giving from an IRA with any amounts withdrawn counting toward that year’s  required minimum distribution. There are no income taxes or estate taxes on retirement funds that are contributed directly to a charity.

Naming a charity as a beneficiary of a life insurance policy can be another way of giving to charity. The charity will not have to pay taxes on the amount given in this manner.

Many life insurance policies allow you to name several beneficiaries which enable you to contribute to multiple charities. In Florida, life insurance policies and IRAs do not need to be distributed through probate.

Real properties like homes, condos or vacation properties can be contributed to charity via a trust which enables you to continue to use them during your lifetime and receive tax deductions for the contribution.

6 Steps Setting up Charitable Giving in Estate Planning

1. Determine your Charitable Goals
   What are the causes you feel most passionately about? What are the charitable organizations that support those goals that could benefit most from your giving?
2. What are the Amounts you Want to Give?
   How much you want to donate and what your charitable goals are will determine which giving strategy best serves your needs and how that will be structured.  Each approach has different giving amounts that requires a Florida Financial Planner to calculate the maximum tax benefits for your situation.
3. Get Professional Estate & Legal Help
   While the rewards of charitable giving can be great, by any measure it is a complicated process that requires expert legal and financial planning advice to comply with all tax requirements. Get the help and guidance of a Florida Financial Planner to maximize the tax benefits.
4. Research Charities & Identify Benefactors
   Make contact with the charities that you are considering and communicate with them your intentions. Ask any questions you have about how the money would be used.
5. Put Everything into Writing
   Be certain everything is written in legally binding language by an experienced estate planning professional.
6. Revisit your Estate Planning Periodically
   From time to time review your estate planning to be certain it is still current and accurately expressing your most up to date wishes and compliance with tax laws.

Common Mistakes

Failing to clearly specify intentions in writing is one of the most common mistakes a Florida financial planning professional can help guide you through and prevent. It’s important to discuss with family members your charitable giving so there are no surprises that can later lead to disputes.

One of the most important gifts you can give to your heirs is clear communication of your intentions that are understood by all family members so your memory is one of caring rather than potential conflict among family members after you pass.

Conclusion

There are several ways to incorporate charitable giving into your Florida estate planning that can be as simple as including a bequest in your will floor naming a benefactor in your life insurance policy or IRA. However, there are many tax benefits setting up charitable trusts, giving to a donor-advised fund or setting up a private foundation.

What are the things you value most in life that you would like to be remembered for? Would you like to be remembered for your actions that made the world a better place that live on long after you are gone? Or be the richest man in the graveyard?

Would you like to be remembered as an inspiring and unifying example for your family and heirs, or someone who left the family divided disputing your true intentions because they were not specified clearly? Squandering your legacy?

Making charitable giving part of your estate planning is complicated and requires the help of a qualified Florida Financial Planner who understands all of the tax implications and benefits to arrive at the best solution that is right for you!