Should I Make Charitable Gifts During Life or After Death?

Tools for Charitable Giving During Life

Donor-Advised Funds (DAFs) or Charitable Lead Trusts (CLTs) can be used to charitably gift during life.

Donor-Advised Funds

DAFs allow you to contribute cash or investments to a fund managed by a charity or financial institution. DAF funds grow without income tax consequences. A donor can recommend grants be made to charities during life or have the fund donated at your death after years of appreciation.

Charitable Lead Trusts

Alternatively, CLTs allow donors to transfer assets to an irrevocable trust and pay the income generated from the trust assets to the Charity. When the donor dies, the remaining assets pass to the donor’s family or non-charitable beneficiaries. There are income tax benefits available to the donor. At the donor’s death, the CLT assets transferred to beneficiaries free of capital gains.

Gifting After Death

Charitable giving after death can be achieved through the creation of Charitable Remainder Trusts (CRTs), naming a charity as beneficiary of a life insurance policy or retirement account, or making bequests in your Trust or Will. CRTs allow you to transfer assets to an irrevocable trust and the income generated from the assets can be paid to non-charitable beneficiaries for a specific period. When the donor dies, the charity receives the assets left in the CRT and that value determines the estate tax deduction.

Similarly, if you name a charity as beneficiary of a retirement account or life insurance policy, the asset is not includable in the donor’s estate value, and the charity receives the asset income tax-free. If gifting to a charity pursuant to a Trust or Will, the gift’s value is excludable from your estate value. You can also include a provision in your Trust or Will known as the “Santa Clause” which directs a specific amount be paid to charities only if the estate’s total value exceeds the estate tax exemption.

You should work closely with your accountant, financial advisor, and estate planning attorney to decide which options are most appropriate and practical for you.