Planned Giving: Smart & Easy Ways to Leave Gifts to Charity

When people hear “planned giving” or “estate giving” to charity, they think yikes – complexity – CRTs and other acronyms – lawyers!

But, gifts to charity don’t have to be complicated. They can be both smart and easy.

In this article we take you through the key information and show you great techniques that are smart, easy to set up, avoid income and estate taxes, and allow you to change your mind during your lifetime. You can turn that grimace into an amazed happy face.

Part 1: IRAs and other Deferred-Income Assets, the Super Stars

IRAs, retirement plans, deferred annuities and U.S. Savings Bonds purchased at a discount are what we call deferred-income assets. Each contains income that has never been taxed.

When choosing which assets to leave to which heirs, think of charities first for deferred-income assets. No heir will benefit more:

• Charities won’t pay income taxes on payouts from deferred-income assets.
• Individual beneficiaries will pay income taxes on those payouts, at their individual rates.

An example: Let’s say you have a $100,000 IRA and other assets to leave in your estate, and you’d like to help both your son Bill and your favorite charity. Bill is in the combined 35% tax bracket (federal and state income taxes).

• If you give the IRA to your favorite charity, it will get to keep all $100,000 (or benefit 100%) from the gift — because the charity pays no income taxes.
• If you give the IRA to Bill, he will get to keep only $65,000 (or benefit 65%) from the gift — because he will have to pay $35,000 (35%) in income taxes.
• Give the IRA to the charity, your other assets to Bill.

Part 2: Changing your mind during lifetime

Stuff happens. Relationships change. Financial situations change. Things change.

It’s valuable to set up gifts to charity in a way that you can change your mind down the road. Perhaps you’ll want the money or asset for other purposes. Perhaps you’ll no longer have the money or asset. Perhaps the charity will no longer be operating, or no longer be operating in your focus area.

When evaluating approaches to leaving gifts to charity, look at whether you can change your mind during your lifetime. Or, if you become incapacitated, whether your agent could do so for you under a financial power of attorney.

An example: We talked in Part 1 about leaving an IRA to a charity. You would do that during your lifetime by naming the charity as the beneficiary. Good news for you: You can change your beneficiary naming during your lifetime; the charitable beneficiary has no rights to the IRA until you’ve died and the charity is still named.

Part 3: Estate Taxes

We’re talking about the Federal Estate Tax — the tax on giving assets to others at your death. Few estates are taxable under current estate tax laws (in 2022, an individual can leave an estate worth up to $12.06 million without a federal estate tax). Note: unless the law is revised, the $12.06 amount will drop to $5 million in 2026.

Even so, gifts to charities are normally 100% deductible for estate tax purposes.

An example: Let’s say that George (a widower) has an estate valued at $13.06 million, and dies in 2022. The Federal Estate Tax exemption amount is $12.06 million. He would have a taxable estate of $1.0 million. George could give $12.06.0 million of his estate to family and friends and give the remaining $1.0 million to charity, and there would be no Federal Estate Tax on George’s estate.

Part 4: Easy-to-set-up tools

You have four easy-to-set-up tools for leaving a gift to charity.

1. Beneficiary naming. Giving an IRA, retirement plan, or deferred annuity to a charity is accomplished by beneficiary naming — you name the charity as a beneficiary (primary or contingent) using the plan provider’s forms.
2. Transfer-on-death. Brokerage and mutual fund accounts can be given to a charity using a transfer-on-death arrangement — similar to naming a beneficiary. Not all brokerage and mutual fund firms provide transfer-on-death arrangements — check with the firm first.
3. Pay-on-death. Bank accounts can be given using a pay on death arrangement — also similar to beneficiary naming. A bank might refer to this as an “in trust for” or “Totten Trust” or “beneficiary” arrangement. Check with the bank’s new accounts specialist.
4. Will or trust gift. Giving U.S. Savings Bond and most other assets to a charity is accomplished by designating it to received them under a will or trust.
   • Do not make the charity a lifetime co-owner or pay-on-death beneficiary of U.S. Savings Bonds purchased at a discount.

Simplicity evaluation

• Numbers 1, 2 and 3 above are usually simple and inexpensive to accomplish.
• For Number 4 above, use an experienced and capable attorney. If the donor already has a will or trust, adding the charity can be easy and inexpensive to accomplish. Creating a new well-crafted will or trust typically involves greater time and expense.

Part 5: Putting the Parts Together

Now it’s time to put things together with the Smart & Easy Scorecard. Each of the seven approaches in the Scorecard is a smart and easy way to leave a gift to a charity of your choice. The approaches (## 1 to 7) are ranked declining order of combined “smart and easy stars.”

Smart & Easy Scorecard

#	Asset	Tool	Deferred Income Avoids Income Tax	Change Your Mind During Lifetime	Estate Tax Deduction	Easy to Set Up
1	IRAs and Retirement Plans	Beneficiary Naming	★	★	★	★
2	Deferred Annuities	Beneficiary Naming	★	★	★	★
3	U.S. Savings Bonds	Will or Trust Gift	★	★	★	★?
4	Life Insurance and Immediate Annuities	Beneficiary Naming		★	★	★
5	Brokerage Accounts and Mutual Funds	Transfer on Death		★	★	★
6	Bank Accounts	Pay on Death		★	★	★
7	Most Others	Will or Trust Gift		★	★	★?

Reviewing the rankings

• #1 (naming a charity as beneficiary of your IRA or retirement plan) earns a star in each category for a total of 4 stars. It’s a deferred income asset, you can change your mind during your lifetime, you get an estate tax deduction, and it’s easy to set up.
• #2 (naming a charity as beneficiary of your deferred annuity) ties #1 for 4 stars.
• #3 (U.S. Savings Bonds given through your will or trust) would have earned 4 stars but gets downgraded slightly because the will or trust aspect makes it it bit less easy to set up.
• ## 4, 5 and 6 each earn 3 stars (but they don’t qualify for the deferred income asset star).
• #7 (most other assets through a will and trust) would have earned 3 stars but gets downgraded slightly because the will or trust aspect makes it it bit less easy to set up.