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How can holiday charitable giving affect estate planning?

On Behalf of | Nov 16, 2023 | Estate Planning

Roughly 30% of all charitable giving occurs in December, with the last three days of the month accounting for $1 out of every $10 charities receive annually. People are understandably more generous during the holiday season, and that generosity can also result in financial benefits for themselves.

Charitable giving allows you to support the organizations or causes closest to your heart. At the same time, the potential tax advantages can reduce your estate’s tax liabilities by lowering its value. That could result in more assets being distributed to your heirs.

End-of-year charitable donations

Besides helping charities meet their yearly goals, it’s estimated that every dollar you donate can save approximately 40 cents in estate taxes. That can be highly significant if your estate exceeds the federal estate tax threshold of $12.92 million for individuals or $25.84 million for married couples.

To receive these benefits, your chosen organizations must qualify for tax-exempt status under IRS guidelines. Included are groups that focus on religious, educational, literary or scientific purposes, as well as those who seek to prevent cruelty to people and animals or support military veteran causes.

The types of charitable gifts also vary. You can make a one-time cash donation or establish a charitable trust or annuity that provides ongoing payments. Donors can also choose to donate other assets, such as vehicles and deduct the fair market value of those items.

Choosing a charitable giving strategy

Several factors should be considered when selecting your goals for charitable giving. Here are four questions to ask yourself:

  • What financial goals do I want to achieve?
  • What types of assets do I want to donate?
  • What amount of control do I want to retain over these assets?
  • What are the potential tax implications?

Getting knowledgeable estate planning guidance can help you determine the plan that best suits your needs. This may include one-time end-of-year cash donations, establishing a donor-advised fund (DAF), creating a charitable remainder trust (CRT) or incorporating charitable giving into your will or trust.