Strategies to Maximize Charitable Giving for Estate Tax Planning

 

In 2026, the estate tax exemption is set to be reduced, exposing more estates to a 40% tax on assets over $7 million for individuals and between $14 million and $14.5 million for couples (link from footnote). 

 

This change may affect the amount individuals can leave to charity after their passing. However, by exploring strategic options, individuals can reduce estate taxes while maximizing charitable contributions.

 

To minimize future tax impacts, it’s beneficial to consider giving sooner rather than later. This could involve making tax-efficient donations during one’s lifetime or establishing a long-term charitable vehicle.

 

Three Approaches to Enhance Charitable Giving While Managing Estate Taxes

Options for tax-efficient charitable giving include donor-advised funds (DAFs), charitable trusts, and family foundations. Each option has distinct advantages and considerations. 

Here’s a breakdown:

• Donor-Advised Fund (DAF): DAFs are straightforward, allowing donors to contribute to multiple charities while reducing taxable estate assets. Benefits include immediate tax deductions and tax-free growth of funds, with no annual distribution or reporting requirements. However, once donations are made, donors lose control over how funds are allocated.
• Charitable Trust: Charitable trusts offer tax-deductible contributions, tax-free growth, and the potential for lifetime income streams for the donor. After the donor’s passing, the trust’s remaining assets can benefit charities or family beneficiaries, depending on how it is set up. Although donors retain control, charitable trusts are more complex and costly to administer than DAFs.
• Family Foundation: In addition to having the same tax benefits as a DAF and Charitable Trust, a family foundation provides a platform for creating a philanthropic legacy. Donors can involve family members in charitable decisions, passing down values across generations. However, foundations require significant administrative efforts, including annual distributions, staff management, detailed reporting, and payment of an excise tax on investment income.

Footnote

HUB Southwest’s retirement and private wealth advisors provide a range of services for both organizations and individuals. They offer institutional and retirement solutions tailored to the needs of both for-profit and nonprofit organizations, as well as personalized private wealth management services for individuals and families.

HUB Retirement and Private Wealth employees are Registered Representatives of and offer Securities and Advisory services through various Broker Dealers and Registered Investment Advisors, which may or may not be affiliated with HUB International. Insurance services are offered through HUB International, an affiliate.

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

Link for article footnoted in first paragraph  – https://www.eidebailly.com/insights/articles/2020/7/estate-and-gift-tax-are-you-prepared-for-changes