Donating to charitable organizations is one of the best ways to live your values and transform the lives of future generations. By extending your philanthropy in your will, you can continue helping the causes you care about most and leave a lasting legacy.
Over 80% of all donations to charities and nonprofit organizations in the U.S. come from individuals as opposed to corporations. The average American supports 4.5 charitable organizations. Over 56% of Americans gave charitably in 2021. In the same year, there was a 4.9% increase in donations made by individuals and the majority of those were made through wills.
One of the most straightforward ways to make charitable donations after death is via a bequest through your will. With this approach, you can designate assets such as stocks, bonds, and real estate to a charitable organization through your will.
That said, even a well-intentioned gift requires careful thought, since making charitable donations comes with certain tax and estate planning implications. Here’s everything you need to know about setting up charitable donations in your will.
What can you donate to charitable organizations in your will?
- Financial assets such as stocks, bonds or cash
- Life insurance benefits such as death benefits from a whole-life insurance policy
- Real estate such as your primary home or investment properties
- Personal property such as jewelry, vehicles, collectibles, or artwork
- Retirement assets such as proceeds from an annuity, your IRA, 401(k) or other qualified retirement accounts
You can choose to allocate all or just a portion of these assets to the charity or organization of your choice.
As part of your estate planning, it’s worth leaving specific instructions for the executor of your estate to notify the charitable organization of your death in a timely manner. Include details about how and when they can access your donation.
Please note that given the legal nature of estate planning, it is always beneficial to review estate planning with a legal professional. Most nonprofits do not provide specific legal or tax advice but can partner with you and your tax professional or attorney to provide details on your overall financial strategy.
A bequest through your will
One of the most straightforward ways to make charitable donations after death is via a bequest through your will.
With this approach, you can designate assets such as stocks, bonds, or real estate to a charitable organization through your will. When you pass away, these assets will be removed from your estate, which could help to reduce estate taxes.
Designate the charitable organization as your life insurance beneficiary
You can choose a charitable organization to be a beneficiary of your life insurance proceeds, annuity, or retirement accounts. This could lower the value of your estate, which may reduce estate taxes.
To do so, you’ll need to complete the beneficiary forms for that particular asset and list the charitable organization as a beneficiary of that asset. You must provide the organization’s tax ID number (MESA’s EIN is 84-0520493) to make this change and notify them that their organization is a beneficiary of your policy.
There are some things to keep in mind when donating beneficiary proceeds to a charitable organization. Ensure that your life insurance provider allows you to designate an organization as your beneficiary in the first place, as some insurers prohibit this. How you structure this gift is also important. As long as you remain the owner of the policy, you can still access the contract’s cash value if you have whole-life coverage. It’s also more straightforward for the organization since they’ll receive a lump sum payment after your death. However, the drawback of this approach is that the asset may still count as part of your estate, which means estate taxes may apply.
Alternatively, you could transfer ownership of the policy to the charitable organization. The advantage here is that the policy won’t be counted as part of your estate—however, you can’t reverse the decision. That being said, this approach may be worthwhile if you have a smaller, secondary whole-life insurance policy you want to designate for charity.
Designate a charitable organization as a beneficiary for your retirement accounts
With an IRA or other qualified retirement account, you can designate a charitable organization as the beneficiary. The charitable organization also benefits since they do not have to pay income tax on any of these proceeds. If you’re married or have a domestic partner, ensure that your spouse also consents to making the charitable organization a beneficiary. Otherwise, it could disqualify the charitable organization from receiving your retirement proceeds once the time comes.
Another option is to donate your retirement proceeds via a donor-advised fund which is an account created specifically for donations to charitable organization. First, you make an irrevocable contribution of assets such as cash, stock, real estate, or private business interests to the fund. Then, you and your family can make grants to your chosen charities—while you’re still living as well as after you die. Assets in the fund may grow over time making more money available for your favorite organizations. Your contributions may also be eligible for a charitable tax deduction during the year the gift is made.
Once you decide the best route for your philanthropic gifts, make a list of potential charitable organizations and discuss your plans with your loved ones. Then, sit down with a financial advisor or estate planning attorney to figure out how much you can donate to your chosen organizations and how to best structure your charitable donations for maximum impact. Putting a plan for charitable giving in place now helps ensure you leave a lasting legacy.
Are you interested in leaving a lasting legacy to MESA? Are you ready to make the most of your giving? We can help you determine if a gift of bequests or beneficiary proceeds is right for you. Contact Brian Heider, MESA’s Development and Marketing Manager, at [email protected] with your questions and/comments and we can help set up a meeting between MESA, you, and your financial advisor and/or estate planning attorney.
By leaving a legacy to MESA, you become a part of ending sexual assault and violence today and in the future.