While you're no Oprah, you've given to charity your whole life. As you are planning your estate, this trend doesn't need to stop. You can choose to give a house or other type of estate to a charity. Find out the several ways you can leave your property behind.
Options for Charities and Estate Planning
Charities and estate planning do go together. A number of people choose to include a bequest to a favorite charity when planning how to divide their estate.
Leaving Property to Charity
When it comes to charities and estate planning, leaving a home or a vacation cottage to a charity is an option. The charity will receive title to the property, or cash after the property is sold. Meanwhile, the individual is free to live in or use the property during his or her lifetime.
Giving Your IRA to Charity
If you decide to transfer the balance in your IRA to a charity, the funds will be transferred to that organization tax-free. If you want to make your donation to the charity during your lifetime, you can withdraw the funds from the IRA, pay the required taxes, and then transfer the balance to the organization of your choice.
Another option is to leave the funds in your IRA to one of your heirs, with a contingency clause added to your will. This way, your heir can choose to either keep the funds from the IRA (and pay the required taxes) or pass them on to the charity named as a contingent beneficiary.
A gift annuity is an option for a homeowner or property owner who wants to donate real estate to charity but who needs a regular source of income during his or her lifetime.
How a Gift Annuity Works
The donor gives the home, property, or cash to the charity. In return, the charity purchases an annuity in the name of the donor. The annuity provides monthly payments to the donor for the rest of his or her life.
The payment the donor receives varies based on the face amount of the annuity and his or her age. A certain percentage of the payment is tax-free, which is another advantage to this plan.
The donor may choose to receive payments from the gift annuity immediately or defer payments for a certain time. If the donor chooses the deferred gift annuity option, the payments must be deferred for at least one year.
Charitable Remainder Trust
Another option which includes charities in estate planning is a charitable remainder trust. As the name implies, the trust provides income to the donor during his or her lifetime, and then pays the remaining funds to the charity after the donor's death.
Advantages of a Charitable Remainder Trust
If a person has a sizable asset to donate to charity, using a charitable remainder trust can be a good option. The trust can sell the donated property without being subject to capital gains tax. The donor receives an income for life, based on a percentage of the value of the property put into trust, and an income tax receipt for his or her donation.
A Final Note
Consult with an attorney who specializes in estate law to set up a charitable remainder trust, or for any other questions or concerns about charities and estate planning.