Illinois Charitable Giving in Estate Planning

An excellent way to donate to a charity is through a traditional IRA.

Ordinarily, if you designate someone as the beneficiary of your IRA, he would owe income tax on the withdrawals and the value of the IRA would be included in your estate for tax purposes. But if you name a charity as the beneficiary, the charity would owe no tax on the withdrawals and you could reduce the taxes your estate would pay.

This strategy should not be applied to a Roth IRA because a Roth is funded with after tax dollars and whoever withdraws the funds will not have to pay income tax on the withdrawals.

If you prefer to give the funds to charity now, through the end of 2009 you can transfer up to $100,000 directly to a charity as long as you are 70 1/2 or older. You cannot claim a tax deduction for the contribution, but you will not owe income tax on the withdrawal.

Another option is a charitable remainder trust. The assets in the trust pay you an income for a specified number of years or for your lifetime. After the trust matures, the assets are distributed to the charity you designate. There is a requirement that at least 10% of the funds you put in the trust go to the charity.

The advantages of a charitable remainder trust are that you can take an immediate tax deduction based on the present value of the gift that the charity will receive; you get a fixed income stream of at least 5% of the trust’s value each year; and you can move assets that have appreciated in value and sell them in the trust without incurring capital gains taxes.

Contact an estate planning law firm for further information.

badges