What Are the Best Ways to Use Philanthropy in Your Estate Plan?

Much of what goes into creating your estate plan involves making difficult decisions about the future, such as planning for incapacity or setting up the estate plan to boost family assets and provide for generations. However, there is another aspect of estate planning that can be deeply rewarding. 

Crafting your estate plan presents an opportunity to give back to the causes you care about and to plan for how to use your assets to make an impact in the world. An experienced Naperville, IL estate planning attorney can help you use philanthropy in your estate plan. 

How Does Philanthropy Tie Into Estate Planning? 

Assets that are transferred to charity often avoid taxation or can minimize the overall tax burden of your estate. For this reason, integrating philanthropic giving into your estate plan can be a great way to achieve your charitable goals while maximizing your tax savings. Additionally, philanthropy is an opportunity to think big about your legacy and craft a plan to preserve it.

Even better, designating a portion of your estate plan for charitable giving will benefit the causes you care about most, – but research shows that charitable giving is good for you, too. Helping others through volunteering or charitable giving causes chemical reactions in our brains, including increases of serotonin, dopamine, and oxytocin, making us feel happier and more engaged. 

Considerations for Using Philanthropy In Your Estate Plan

Philanthropy is charitable giving on a large scale. To be most effective, it requires thoughtful planning. The ways philanthropy can make an impact are wide and deep and depend on the resources you wish to use as well as your values. 

Review Your Assets

As with other aspects of estate planning, the first thing to do is to review your assets. It is important to take a look at the big financial picture. This will help you determine the assets that you want to earmark to fund philanthropic causes.

Make a List of Values

Once you have determined how much you want to give, you should spend some time thinking about the values that drive your philanthropy. Philanthropy can look very different depending on what matters to you.  How do you wish to make the world a better place?

You could invest in non-government organizations, give a new hospital wing, or sponsor scholarships for your alma mater. It can be helpful to craft a mission statement to guide your vision for charitable giving and to research organizations that operate in the areas that matter to you.  

In the long term, there are strategies to ensure that your estate’s charitable giving stays on track with your values. It can be helpful to track your contributions and their impact. By regularly reviewing your charitable goals and the implementation of philanthropy in your estate plan you can ensure that these stay aligned and maximize the impact of your contributions. 

Ways To Integrate Philanthropy Into Your Estate Plan

Now that you have a deeper understanding of your values and where you want your charitable giving to go, it is time to consider how to implement your philanthropic giving. There are multiple estate planning instruments that you can use for charitable giving. 

Charitable Trusts

Charitable remainder trusts (CRTs) and charitable lead trusts (CLTs) are the two main charitable trusts. The CRT distributes income to beneficiaries with the remainder going to a specific charity at the time of your passing. A CLT works similarly but in reverse. Trust income goes to a named charity, and the remainder of the assets go to non-charitable beneficiaries such as family members upon your passing or the occurrence of a specific event. These trusts can be a great way to use one instrument to leave income to family and charity. 

Donor-Advised Fund 

The donor-advised trust or DAF is a charitable account created for the purpose of giving to charity. It establishes a public nonprofit charity and allows you to make a charitable contribution for which you receive a tax deduction. With a DAF, you can continue donating to the fund periodically, and the fund will also recommend potential recipient charities, giving you a chance to think about your charitable goals. 

Family Foundation 

When you set up a private family foundation, your family runs this private foundation funded with your family’s assets. A family foundation can be a great way to set up an organization devoted to charitable giving, which provides a framework to plan the family’s philanthropy and execute that plan. 

Charitable Bequests

Charitable bequests are gifts to charitable organizations, usually in a will or trust. Charitable bequests offer a great deal of flexibility and have the benefit of being easy to change to adapt to your giving values and goals. They also offer tax benefits. They can be a great way to leave a legacy as nonprofits often recognize large charitable bequests, such as a bequest to build a new hospital wing bearing your family’s name. 

Beneficiary of Retirement Accounts

Retirement accounts can also be donated to charity, including individual retirement accounts (IRAs) and 401(k)s. Donating these types of accounts upon your passing as part of your estate plan can have significant tax benefits as you will not pay income taxes. As with CRTs and CLTs, it is possible to divide the distribution of these assets between charities and family members. IRA assets can also fund donor-advised funds upon your passing. 

Legacy Gifts

Legacy gifts encompass multiple ways of giving to charity, including direct charitable bequests or from the proceeds of life insurance, trusts, annuities, and even retirement funds. Also called planned giving, legacy gifts are usually planned for after your passing and tend to be major gifts. 

Contact a Naperville, IL Estate Planning Attorney

As a successful individual, you have worked hard throughout your life. The experienced Naperville, IL estate planning attorney can help you use your estate plan to ensure the disposition of your assets not only for your family but also for the causes that matter to you. At the Gierach Law Firm, we help high-net-worth individuals use philanthropy in their estate plans. Call the firm at 630-228-9413 for a consultation today.