As we head into the holidays, you may notice more end-of-year nonprofit fundraising letters in your mailbox. That's because many people make charitable donations at the end of the tax year, knowing that they can deduct charitable donations from their income tax for a year in which they made a contribution. Besides year-to-year income tax reductions, however, you can use charitable donations as a way to reduce your estate tax. A person who donates to an approved charity at the time of death can have the amount of the donation subtracted from his or her estate, thus lowering his or her estate tax.
What is a "qualified" charity?
A qualified charity is one that has applied for and received 501 (c )(3) status. Usually this will mean that the organization engages in religious, educational or governmental activities, and receives most of its funding from grants and gifts from the public.
Why donate to a charity?
In addition to the concrete tax benefits available from charitable donations, transferring money to a charity in life or at death (or both) can be a fulfilling element of a balanced estate plan. If you were passionate about a certain cause in life, or volunteered with an organization, transferring a part of your estate to that nonprofit can ensure that your support continues after you are gone. Whether a transfer from your estate funds a scholarship, provides infrastructure for an animal shelter or contributes to outreach for veterans in need, your charitable contribution can help your surviving family and those assisted by the charitable organization as well.
Will you donate this holiday season?
If you have thought of including a charitable gift as a part of your estate plan, talk to a qualified estate planning lawyer who can help craft a plan that meets your needs.