Charitable Estate Planning: Strategic Giving that Creates a Lasting Legacy

Authored by Serena Compitello, Trust Counsel, Tompkins Financial Advisors.

As individuals and families consider the legacy they wish to leave behind, charitable estate planning offers a unique opportunity to make a meaningful impact while also achieving important financial and tax planning goals. Whether your aim is to support causes close to your heart or to structure your estate in a tax-efficient manner, charitable giving strategies can play a vital role in your comprehensive estate plan.

At its core, charitable estate planning involves designating assets to be donated to charitable organizations—either during your lifetime or upon your death—as part of a broader wealth management strategy. With proper planning, you can support the missions you care about while also potentially reducing estate and income taxes, increasing retirement income, and simplifying the transfer of assets to heirs.

Below, we provide an overview of several commonly used charitable estate planning strategies, along with key benefits to consider as you begin this important process.

The Tax Benefits of Charitable Giving

One of the most compelling reasons to incorporate charitable giving into an estate plan are the tax advantages it can provide. When structured properly, charitable donations can help reduce income taxes, capital gains taxes, and estate taxes.

• Income Tax Deductions: Donations to qualified charitable organizations are generally tax-deductible in the year they are made, subject to adjusted gross income (AGI) limits. These deductions can be a valuable planning tool in high-income years.
• Capital Gains Tax Avoidance: Donating appreciated securities or real estate to charity may allow donors to avoid capital gains taxes, while still receiving a charitable deduction for the fair market value of the asset.
• Estate Tax Reduction: Assets left to qualified charities are typically excluded from the taxable estate, helping reduce or even eliminate estate tax liability for high-net-worth individuals.

Charitable Remainder Trusts (CRTs)

A Charitable Remainder Trust is a powerful tool for individuals who wish to make a significant charitable contribution while still retaining income from the asset during their lifetime or a set term.

Here’s how it works:

1. You transfer assets—such as cash, securities, or real estate—into an irrevocable trust.
2. The trust pays income to you (or other beneficiaries) for life or for a specific number of years.
3. At the end of the trust term, the remaining assets go to the designated charitable organization(s).

CRTs can offer several advantages, including:

• A current-year income tax deduction based on the present value of the remainder interest going to charity.
• Avoidance of capital gains taxes on donated appreciated assets.
• Ongoing income, potentially for life.

Donor-Advised Funds (DAFs)

Donor-Advised Funds are a great option for individuals seeking flexibility and simplicity. A DAF is a charitable giving account that allows you to recommend grants from the fund over time to charities of your choice. Tompkins is proud to offer the Tompkins Charitable Gift Fund as an option for our clients who wish to use this charitable giving strategy.

Key features of DAFs include:

• Immediate Tax Deduction: Contributions to a DAF are tax-deductible in the year of the gift, even if grants to charities are made in later years.
• Ease of Administration: The sponsoring organization handles recordkeeping, disbursements, and compliance.
• Investment Growth: Assets in the DAF can be invested and potentially grow tax-free, increasing the amount available for charitable giving.
• Flexibility: You can contribute to the DAF as frequently as you would like.

DAFs are particularly attractive for those who experience a windfall year, sell a business, or want to bundle multiple years of charitable giving into one tax year.

Naming a Charity as a Beneficiary of a Retirement Plan

Qualified retirement plans, such as IRAs and 401(k)s, can be among the most tax-efficient assets to donate to charity upon death. When inherited by individual beneficiaries, these assets may be subject to income taxes and, in some cases, estate taxes. However, when left to a qualified charitable organization, they are generally exempt from both.

You can designate a charity as:

• Primary Beneficiary: Receiving all of the account upon your death.
• Contingent Beneficiary: Receiving the assets only if the primary beneficiary is no longer living.
• Partial Beneficiary: Receiving a portion of the account, with the remainder going to individual heirs.

Naming a charity as the beneficiary of a retirement plan is a straightforward way to support charitable causes while maximizing tax efficiency for your estate.

Crafting a Strategy That Reflects Your Values

Charitable estate planning is not one-size-fits-all. Each individual’s financial situation, philanthropic goals, and family considerations are unique. An effective strategy takes into account your values, the needs of your loved ones, and the causes you care about most.

Working with an experienced advisor can help you evaluate options, understand the tax implications, and develop a tailored plan that meets your goals.

We’re Here to Help

At Tompkins Financial Advisors, we believe that estate planning is about more than transferring wealth—it’s about creating a legacy that reflects your life’s priorities. Our experienced team is here to guide you through the complexities of charitable estate planning and help you implement strategies that align with your financial objectives and philanthropic vision.

Whether you're considering establishing a charitable trust, contributing to a donor-advised fund, or updating your beneficiary designations, we welcome the opportunity to have a thoughtful conversation about how charitable giving can enhance your estate plan.

Let’s work together to create a legacy that lasts.

If you have any questions about planning for the future, reach out to one of our Trust Team today! https://www.tompkinsfinancialadvisors.com/about-us/contact-us