Conversations about estate planning often focus on leaving gifts and possessions to our loved ones. But a beneficiary doesn’t have to be a person. It can be a charity or nonprofit organization instead.
Just because you can’t afford to give a significant donation to a charity right now doesn’t mean you won’t be able to in the future. Legacy giving lets you leave a monetary donation or item of value to a charity using your last will and testament.
That comes with many benefits to you, your estate, and, of course, the charity you leave a bequest to. Read on to learn how estate planning can help you support charities near and dear to your heart.
Why to Consider Leaving Money to a Charity in Your Will
Legacy giving is an all-around positive experience. It provides a variety of perks to everyone involved, like providing you with an opportunity to leave a larger donation, giving purpose to your belongings, and reducing your estate taxes.
The following benefits are more than enough to consider leaving a legacy gift in your estate plans.
1. Providing Larger Donations to Charities
While small donations are always appreciated, charities rely on large donations to keep them afloat in the long term. These larger donations mean a lot to charities because they help them to plan for the future instead of simply covering month-to-month costs.
When you provide a substantial donation to a charity, you’re giving them a chance to grow and expand. Sizable donations help charitable organizations to expand their facilities and invest in new campaigns and initiatives.
2. Giving Purpose to Your Belongings
You probably have a few specific items in mind that you would like to give to your loved ones, such as a piece of jewelry or a vehicle. But aside from a few sentimental or valuable pieces, most of your belongings may end up being sold at an estate sale after you pass away.
Including charitable donations in your will gives purpose to your belongings, allowing a cause that’s close to your heart to benefit from your generosity. Instead of letting them be sold off at random, leave relevant possessions of value to the charity of your choice. This gives them meaning in a way that aligns with your beliefs and preferences.
3. Allowing You to Give When You Can Afford to
While you may not be able to donate a large amount of money or item of value to a charity right now, chances are you will accumulate wealth throughout your life. Think of any properties you own and the savings you accrue over time as your living costs decrease, such as vehicle and mortgage payments.
You obviously need to have a home and method of transportation while you’re alive, but you can’t take them with you when you pass away. If you don’t have a loved one you’d like to leave your property to, you can donate the proceeds of its sale to a registered charity, making for a substantial donation.
It doesn’t just have to be a property either. The same goes for auctionable items of value, stocks, and cash. The best part is that legacy giving doesn’t take away from your current assets.
This gives you a chance to support the charity of your choice when you can afford to — instead of trying to make small donations here and there that affect your budget.
4. Letting You Leave a Legacy
Everyone wants to leave their mark on the world in some way when they die. Charitable giving is a great way to do this. Because legacy gifts tend to be larger than everyday donations, they make a big difference to the charities that receive them.
By leaving a charitable bequest to an organization you care about, you’re honoring yourself in relation to a cause that is near and dear to your heart.
Depending on the size of your donation and the type of charity you support, you may even have a chance to memorialize yourself in some way. For example, the charity may plant a tree, make a plaque, or even name a building in your honor.
As an added benefit, you can enjoy many of these perks before you pass away. Many organizations have legacy programs in place to honor and thank those who have included a donation in their will. This can mean invites to exclusive events, gifts, and recognition on donor walls or in speeches.
5. Reducing Your Estate Taxes
If your net worth is high when you pass away, your estate may also be subject to estate taxes, which can significantly reduce the net amount your heirs receive. The federal estate tax calculated during the probate process must be paid before your remaining assets are distributed to your family members and loved ones.
Fortunately, charitable contributions in the form of planned giving typically count as a tax deduction. This means the amount of estate taxes owed to the IRS will be reduced, providing your estate with significant tax benefits.
However, in order for your beneficiaries to claim a charitable deduction, it needs to be included in your will. This means explicitly stating the name of your favorite charity and the dollar amount or item you would like to donate. Donations made on your behalf that aren’t specified in your will won’t reduce your estate taxes.
It’s important to note that most estates are not subject to estate tax. For example, the federal estate tax only applies to individual estates worth more than $12.06 million as of 2022. However, some states do have lower thresholds, so you may still be liable for state estate tax even if you don’t meet the federal threshold.
What You Can to Leave to Charity in Your Will
You can leave a variety of different gifts to charities in your will. However, you should check to see which items the charity of your choice accepts. For example, while some charitable organizations accept cars, others prefer not to.
As long as the charity you wish to donate to accepts them, you’re free to donate the following assets:
- Real estate
- Savings and retirement accounts
- Stocks and bonds
- A life insurance policy
- Clothes, household items, and furniture
- Cars and other vehicles
- Auctionable items, like paintings and antiques
If you gift an item to a charity that they can’t use, it may be auctioned off by a third party. The charity receives the proceeds from the sale in lieu of the item.
You can also give a specific amount of cash or a percentage of the residue of your estate.
What Types of Legacy Gifts Can I Give to a Charity?
There are four main types of legacy gifts that you include in your will: general, specific, residual, and demonstrative.
A general gift is typically a monetary amount. For example, if your assets total $500,000, and you want to leave $50,000 to a charity from the general value of your estate and not a specific source, it would be considered a general gift.
A specific gift is usually an item of value, such as a painting, family heirloom, jewelry, or securities account. If you left a vehicle to a charity, it would qualify as a specific gift.
A residual gift is when you leave the remainder of your estate to a beneficiary after any general or specific gifts have been distributed. So, if you left specific and general gifts to your children, the residue of your estate would be any assets that are leftover and weren’t gifted to a specific person or organization.
A demonstrative gift is something between a general and specific gift. It’s typically a general gift given from a specific source. For example, if your home is worth $350,000 and you want to leave $50,000 from the sale of the property to a charity, it would be considered a demonstrative gift.
How to Leave Money to a Charity in Your Will
Leaving money to charity in your will is relatively straightforward. Whether you create a will on your own or through an estate planning attorney or law firm, follow these steps to ensure your gift is distributed as per your wishes.
1. Choose a Charity
The first thing you need to do is to select the charity or nonprofit organization you want to leave a gift to. This can be a charity you’ve worked with or donated to throughout your life or that has special meaning to you or a loved one.
If you don’t have a specific charity in mind, start by figuring out which causes are most important to you. For example, do you want to donate towards animal welfare, environmental conservation, or social justice?
Next, create a list of potential charities that interest you. Determine the best organization to donate to by reviewing factors such as:
- Whether they use their funds effectively
- How efficient their fundraising efforts are
- How transparent they are in terms of how they use their money
You don’t have to limit yourself to making a donation to a single organization, either. You’re free to leave a planned gift to as many charities as you’d like. Just be sure to choose organizations that align with your personal beliefs and that you believe will use your gift to its full potential.
2. Decide What to Give
Next, decide what you would like to leave as a planned gift. It helps to review your assets so that you can determine whether you want to leave a specific item of value, a specific dollar amount, a portion of the residue of your estate, or something else.:
What you leave to a charity depends on the assets that you have and your existing beneficiaries. If you have a spouse or children, you may want them to inherit specific items or properties. Make a list of your assets and beneficiaries and plan out which beneficiary you would like to receive specific assets.
For example, you may want to leave your home to your spouse and a specific dollar amount to each of your children. The rest can be divided as you see fit.
If you do decide to leave a large gift to a charitable organization in your will, consider discussing your estate plans with your beneficiaries in advance. Such donations can catch your loved ones off guard after you pass away. Informing them beforehand softens the blow and may help to avoid drawn-out disputes.
If you don’t have any close friends or relatives that you want to leave your estate to, you may choose to donate your entire estate to a charity. In doing so, you’ll be less likely to alienate would-be heirs.
3. Name the Charity as a Beneficiary in Your Will
Once you have a charity and planned gift in mind, it’s time to name them in your will. To do this, you need to have:
- The charity or organization’s legal name
- Which branch you would like to donate to — many charities have national or regional subsidiaries
- The organization’s charitable registration number, which can typically be found on the charity’s website or by contacting them
- Details about the gift you would like to leave, such as whether it’s a physical gift or monetary donation — for example, a description of the item of value or the amount of money you want to donate
You can request that your donation be used towards a specific campaign or initiative. However, it’s not always possible for the charity to honor this sort of request.
Be sure to name at least one alternative charity as well. This ensures your bequest is put to good use if your preferred charity no longer exists when you die.
4. Inform the Charity of Your Gift
The last step is to inform the charity you’ve selected of your legacy gift.
Most organizations have a specific person or team who works to arrange and distribute legacy gifts, so look for a legacy giving section on their website. Many charities even help you through the process by providing you with specific language to include in your will and answering your questions about how they’ll use your donation.
Once they’ve confirmed your participation in their legacy giving program, you’ll be entitled to any perks they offer legacy donors.
By including an organization that you care about in your estate plans, you support a cause that’s near and dear to your heart when you can afford to. And your heirs could benefit financially from that gift if it reduces or eliminates your estate tax obligations.
If you can’t afford to donate money to a charity today, legacy giving is a great way to support them in the future. Consider leaving a gift in your will to maximize your assets’ potential, do some good for the world, and create a legacy for yourself.