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Charitable Provisions in Your Will? Giving During Lifetime May Yield Greater Tax Savings

Posted November 2019

Many of our friends and supporters decide to make a significant gift as part of their estates. Many others, however, accelerate their plans and make gifts during life in order to realize substantial income-tax savings.

Gifts from estates are extremely important to our mission and can be accomplished in a number of ways—such as including provisions for our organization in your will or trust or by naming us the beneficiary of a life insurance policy or retirement-plan account. Some donors, understandably, don’t feel they can use substantial assets to make major charitable gifts during their lifetimes. From a tax perspective, gifts made at the end of life rarely generate estate-tax savings; that is because only a fraction of 1% of estates are subject to the tax due to the current $11.4 million federal estate-tax exemption per taxpayer.

On the other hand, gifts made during life can generate substantial tax savings—which is why many of our friends have changed the timing of their gifts.

Example: Gene has an estate worth approximately $5 million and is contemplating a gift of $250,000 in his will to support our work. His two children will get the balance of his estate regardless of when Gene makes the gift.

If Gene makes the gift through his will, it will produce no federal estate-tax savings because his estate is below the threshold at which the estate tax kicks in. However, if he makes the gift during his lifetime, he would get a $250,000 income-tax charitable deduction that could save him as much as $92,500 in his 37% federal income-tax bracket.

Bonus for Children: Any tax savings Gene realizes could ultimately be a “bonus” to his children by being included in his estate.

Careful planning can minimize the impact of a significant lifetime gift on your current lifestyle. For instance, using an asset to fund the gift that generates no current income—such as undeveloped land or stock that does not pay dividends—would not reduce current cash flow.

We would be pleased to talk with you about planning the most advantageous way for you to give, including choosing the best asset to make your charitable gift.

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