Many of our clients recognize the many blessings they have received and are motivated to be generous. This often takes the form of annual charitable contributions to their church and other worthy organizations. Additionally, some individuals wish to leave a portion of their estate to charity after their passing.

When considering leaving estate assets to charity, the initial inclination is often to specify a percentage in your will for charitable giving upon your passing. However, this approach can lead to several less-than-ideal outcomes:

1. A significant portion of your estate might pass through beneficiary designations and not be factored into the percentage you specified in your will. Only probate assets are governed by the will, potentially resulting in a charitable contribution that is considerably less than your original intention.
2. Typically, assets flowing through probate and your will are eligible for a step-up in tax basis. By contrast, you may inadvertently allocate tax-favored assets to charity, leaving taxable IRA funds for your heirs.
3. The oversight of wills and trusts containing charitable gifts falls under the purview of the Pennsylvania Attorney General’s Office. This government oversight can add both time and expense to the process, especially for estates with assets that are difficult to value.

Naming a charitable organization as a beneficiary on a Traditional IRA or pre-tax retirement plan can offer significant advantages. The charity is not required to pay income tax on the inherited IRA assets, allowing more funds to benefit the charity and/or your heirs. Furthermore, this approach eliminates the need for the PA Attorney General’s Office to oversee the funds designated for charity through an IRA beneficiary designation.

For those who wish to calculate their estate’s charitable contributions as a percentage of the total estate, careful coordination is essential. One of our planning services at Master’s involves routinely assessing the total estate value and the percentage allocated for charitable purposes. If adjustments are necessary for the charitable beneficiary designations, we can facilitate these changes.

Another valuable tool for managing estate charitable giving is a Donor Advised Fund (DAF), commonly referred to as a “giving fund.” With a giving fund, the donor can distribute funds to multiple charities via the fund while designating only one charity as the beneficiary of their IRA. There are additional advantages to utilizing a giving fund, but the administrative convenience alone often justifies the minimal effort and cost.

It is important to recognize that a simple desire to leave money to charity upon your passing can have more complex implications than initially apparent. Identifying the appropriate assets and making the necessary arrangements to ensure these assets reach the intended charities is crucial. The team at Master’s is fully equipped to assist you in implementing the charitable estate plan you envision in the most efficient manner possible.