Sheehan Phinney

Q: What are some effective ways to integrate charitable giving into your estate plan?

A: Charitable giving can be as simple as leaving a specific amount in your will or trust, naming a charity as an account beneficiary, or using a donor-advised fund or charitable trust. The most effective approach often depends on which assets you use to fund the gift.

Traditional IRAs and other tax-deferred retirement accounts can be particularly well suited for charitable gifts. Most adult children and other non-spouse beneficiaries must withdraw an inherited IRA within 10 years. Those distributions are generally taxed as ordinary income, potentially reducing the amount the beneficiary ultimately retains.

A tax-exempt charity, by contrast, generally pays no income tax when it receives IRA funds. Naming a charity as the beneficiary can therefore allow the full value of the account to support the charitable purpose you selected. For example, a $100,000 IRA left to an individual may be worth substantially less after income taxes, while a charity can generally put the full $100,000 to work.

If you intend to benefit both family members and charities, consider leaving IRA assets to charity and other assets to individuals. Inherited investments and real estate often receive an adjustment in income-tax basis at death, potentially reducing or eliminating capital-gains tax on appreciation occurring during your lifetime. Those assets may therefore be more valuable in the hands of individual beneficiaries.

Beneficiary designations should be coordinated with your will or trust and reviewed periodically. Thoughtful asset selection can accomplish the same charitable and family goals while increasing what each beneficiary ultimately receives.

— Mark B. Bartram, attorney and co-chair of the Estate Planning Group, Sheehan Phinney Bass & Green PA