The simple answer to this question is: Yes, you can. However, not all gifts to a church, or any charity for that matter, are the same. You can choose to give money to a charity as an outright gift, or as a gift inside of of your estate planning documents like a trust. You can choose to leave money to a charity, or leave property in kind to a charity. You can also use a gift to charity to reduce estate taxes at your death, or there are even ways to reduce your current income tax burden, if you are so inclined. Giving money to your church or to any other charity can be done in many ways, a few of which will be discussed today.
First, Choose What You Want, or Can Give
First, you will need to determine if you want to leave assets to your church or another charity, or even if you can. I have had many people express a desire to support their church, but when we delve into their assets, and what those assets truly are, most of the people I work with decide to leave assets to their children, or other family, instead of the church. Often this is a result of realizing that although they have worked hard their entire lives, saved, and been financially responsible, there may not be a lot of assets left when the end comes. Medical costs, unexpected costs in retirement, and illnesses can eat into assets, so the assets may be lower than expected at time of death. So, all this to say, you want your estate plan to reflect what your assets may be at the time of your death.
An easy way to account for fluctuating assets is to use fractions, or percentages, in your will or trust. You may want to give 10% to your church, similar to a tithing offering while you are alive, and then split the other assets up among children or family members. You can do this in a will or a trust. If you specify percentages, or fractions, then as the value of your estate fluctuates, the exact numbers to go to your church or family can change without any need to change the final distribution you have set up. A good estate plan will contain flexibility to accomplish your goals, like giving money to your church.
When Giving to Your Church is a Great Idea
For those with more assets in their estate, you may want to choose to give some to your church and some to your children, or you may choose to leave everything to your church, and nothing to your children. Although this may seem a bit extreme, it does happen. I always like it when clients tell me that their children are doing really well on their own, so they don’t need to leave the children any money – the children don’t need it. That is a nice way to have children excluded in favor of charities, without upsetting anyone. Providing for your church or other charity is a nice way to give back to an organization that has helped and benefitted you during the course of your life.
When You Leave Money to a Church, Do it the Right Way
Many churches or other charities have specific parts of the organization that receive charitable donations from an estate or trust. You will want to talk to your church or other charity to ask how they want a donation to be made from your will or trust. Some organizations have specific language, or specific entities within the church organization that receive the donation. Other churches or organizations do not have specific language or entities, so you want to check with your church to see what they want you to do. You will want to follow whatever specific requests or guidelines that your church has for donations from a will or a trust, so make sure that your donation gets where you want it to go. AND – to make sure your donation gets applied to the purpose you desire. Often times it’s the memo line of your check! Churches usually have a handful of “buckets” to which you can donate.
By Giving Money to Your Church, You May Save on Taxes
Most churches are tax exempt organizations, so when you donate money to a church, you get a break on your taxes. I have clients whose net worth exceeds the limits for a taxable estate. Normally, this would be a problem and result in a lot of tax being paid, but in the cases I have seen, the people want to donate enough of their estate assets to charity, that the amount of assets being transferred to their family is below the estate tax limit. The gifts to the church do not count as being taxable to the estate because they are being donated to the church or other charity. By giving a large gift to the church, these people are saving lots of money in estate tax.
In addition, if you have assets that will be taxed upon your death, like IRAs or other retirement accounts, you can designate those funds to be given to your church or other charity. Since the church does not need to pay taxes on those sources of income, you can reduce the taxes that would otherwise be due on retirement accounts. This would also reduce income taxes due.
Giving Money to a Church May Reduce Estate and Income Tax
Estate taxes are not the only taxes that can be reduced by charitable gifts. As you likely know, your income taxes may be reduced by charitable gifts. If you donate to your church while you are alive, you get a charitable gift deduction up to 50% of your income on your income taxes. For those with significant assets, you may not want to donate everything to charity while you are alive just to save on taxes.
However, you can set up a specific type of trust, known as a charitable remainder trust, which sets aside assets that are to be given to your church or other charity at the time of your death. You pledge the assets to be given to charity at the time of your death, but retain the ability to receive income from the assets while you are alive. You can deduct a portion of what you donate to the church or charity through the charitable remainder trust against your current income, without giving up complete control, or being able to benefit from your own assets while you are alive.
Because you give up control of the assets placed in a charitable remainder trust, and you cannot use the assets in your everyday life, you need to carefully consider how much of your assets to sacrifice. Giving to your church or other charity is great, but not at the expense of day to day living. Charitable remainder trusts usually are for the wealthier population, but not exclusively so. You just need to balance living off your own assets with the charitable gift you want to give.
Charitable remainder trusts have very specific rules that must be followed to achieve the tax savings. Usually you will want to have your tax professional involved in any discussion of setting up a charitable remainder trust, as planning for the tax rules can be quite involved. These types of trust also tend to be useful to those with many assets and significant income, as the numbers need to be large enough to justify the monetary and time cost of setting up such a trust.
Giving Money to Your Church is Only Part of Your Estate Plan
Unless you want to give everything to your church, your estate plan needs to reflect more than just the gift to your church or other charity. You can choose how to give money to your church, and to other beneficiaries, like your children. You want to be as clear as you can in your estate plan about what assets go where and who inherits the assets. Your estate plan also needs to include more than just who gets your assets when you pass away. Because the rules regarding gifts to your church or other charity can be complicated, especially when dealing with the tax code, you want to work with an experienced estate planning attorney to accomplish what you want. You can make an appointment to meet with an experienced estate planning attorney by going here.