How Charitable Giving Reduces Your Estate Taxes

If you want to donate to charity or reduce your estate taxes in Illinois, charitable giving is a vital estate planning and financial tool to understand. Learn about charitable giving and reducing estate taxes below, then speak to our estate planning attorneys in Illinois for assistance.

Charitable Giving For Reducing Estate Taxes

Many estate planning attorneys advise making charitable donations in the client’s lifetime instead of at death. There are two reasons to do this:

  • If you give to charity while you are alive, you will be able to enjoy the pleasure of giving to others and receiving their gratitude.
  • You remove those assets from your estate for estate tax purposes, and the donation also qualifies for a deduction on your income tax return. If you make the gift after you die, you will only enjoy estate tax savings.

Charitable Remainder Trust

If you are not prepared to give to charity during your life, another option to discuss with your attorney is a charitable remainder trust (CRT). With this trust, you can make your charitable contribution to the trust any time you like. The trust assets will be distributed to your desired charities after you die. But you can still enjoy income from the asset you donated for the rest of your life. Also, you may take an income tax deduction for the year you gave to the charity.

Charitable Foundation

Another option for making charitable gifts during your life or after you pass is a charitable foundation. However, be aware of many regulatory and administrative requirements for charitable foundations, and large foundations may be audited annually. Every charitable foundation must file IRS Form 990 annually, including administrative and financial information.

Donor-Advised Funds (DAF)

The DAF is another way to reduce estate taxes like a charitable foundation without the administrative and regulatory details. This charitable account is put in your name, but an organization, such as a college, community foundation, hospital, or trust company keeps the funds. Your DAF is part of the organization, administers your funds, and makes charitable contributions according to your wishes.

The DAF is also a way for less wealthy individuals to itemize their tax deductions instead of taking the standard deduction. A DAF donation is deductible for the year in which it is made. So, filers can consolidate two years of donations into one year for income tax purposes. This is one way to meet the IRS threshold to qualify to itemize your deductions.

The charitable options outlined above are effective ways to lower your estate taxes. Which of them works best depends on your situation, so review these charitable giving methods with your estate planning attorney today.

Contact Our Estate Planning Attorneys In Illinois

No one wants to pay more estate taxes than necessary, and one way to reduce your tax obligation is with charitable giving through CRTs, DAFs, foundations, and more. Please contact our estate planning attorneys in Illinois at Orlowsky & Wilson, Ltd., today at (847) 325-5559 to learn how charitable giving can be a valuable part of your estate plan.

Updated as of July 2019
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