Texas Estate Planning for Charitable Giving

You can give to a charity either during your lifetime or through your Will. Each choice will reduce estate taxes at the time of giving.

Working with a trusted advisor in crafting your estate plan lets you make informed decisions about your legacy. Additionally, they will help you figure out how to balance your gift against your current needs and your beneficiaries’ future needs.

At SMC ESQ PLLC, our Texas estate planning attorneys draw on extensive experience when guiding you through creating and implementing your estate plan, including charitable giving.

Our goal is to support you in making informed decisions. We aim to do this by sharing information in easy-to-understand, manageable steps without overwhelming you with too much at once. Our process is about serving our clients the whole way through.

We offer a commitment to proactive communication, and as with all our legal work, empathy is at the core of our process.

As with every form of estate planning, you can mix and match your approach to charitable giving.

If you’re interested in receiving income from your assets during your lifetime but would like the assets to go to a charity later on, a charitable remainder trust (CRT) may be a good option.

Charitable remainder trusts allow you to claim a charitable deduction on your taxes now while benefiting from the income from those assets.

With a CRT, you can give cash, real estate, or other assets to an irrevocable trust. You receive income from the trust for either a set period or your lifetime. After the trust ends, the remaining assets go to the charity.

With a charitable lead trust, your assets are ultimately passed on to your family members or other beneficiaries, but your estate taxes are reduced—and you get to support a favorite charity.

Charitable lead trusts generally function as the opposite of charitable remainder trusts. An irrevocable trust is created to fund a charity with income from assets for a set time. At the end of that time, the payment (and ownership) of the assets changes to named beneficiaries.

A charitable gift annuity is another form of planned giving that allows you to have your cake and eat it too.

With charitable gift annuities, assets are donated to a charity, resulting in a tax deduction—but the donor continues to receive income from the assets at a reduced tax rate. After the donor passes on, the charity continues to own the assets.

A donor-advised fund (DAF) allows for a hands-on approach to guiding, which projects your donations fund.

With a DAF, you receive an immediate tax deduction for your charitable contribution, and then you can advise grants to support meaningful charities and causes. You can also appoint friends and family to help you make these decisions—and you can contribute to the fund as often as makes sense for you.

You can receive tax savings by giving specific assets to a charity. In certain situations, giving the asset directly to the charity—versus selling it and then donating the cash—can be a more effective strategy.

In particular, donating assets that have appreciated significantly can be an effective way to reduce taxes from capital gains. Your charitable tax deduction will typically be based on the fair market value, not what you paid for the asset.

All charities are nonprofits, but not all nonprofits are charities.

Only nonprofits organized as 501(c)(3)s offer tax-deductible giving opportunities. If your favorite nonprofit meets these criteria, you can use any form of charitable giving trusts, donor-advised funds, and more to support the organization.

Most nonprofit corporations—which are organized similarly to for-profit corporations—are 501(c)(3)s, but it’s always a good idea to check before making a contribution when you’re aiming to receive tax deductions.

An unincorporated nonprofit association is an organization that has yet to go through the paperwork and oversight process to receive its 501(c)(3) status. While these associations can fund admirable charitable work, donating to them doesn’t result in a charitable tax deduction.

Private foundations can effectively support charitable causes by giving to already established organizations, institutions, and philanthropists.

When planning charitable giving as part of your estate plan, you can choose between:

• Making contributions to an active private foundation
  
• Starting your own private foundation

Your approach depends on the resources you’re looking to invest and the benefits you’re looking to see. Contributing to a private foundation has the advantage of being tax-deductible, but many foundations only accept donations from private individuals, families, or corporations.

If you’re looking to start your own foundation, this can require time and energy.

The impact they have, though, can be substantial. Private foundations can invest their funding, then distribute it among selected causes and organizations. They also may choose to make financial grants available or operate programs.

Community foundations offer excellent opportunities for supporting local charities and addressing community needs. They’re often funded through donations that can help a variety of estate planning approaches, including:

• Donor-advised funds
• Scholarships
• Endowments
• Giving circles
• Field-of-interest funds
• More

These public charities serve a specific geographic location and support opportunities for an engaged and active form of donation.

Public charities aren’t always the first organization a person thinks of when they hear the word “charity.” Public charities can include:

• Colleges and universities
• Hospitals
• Schools
• Hospital-affiliated medical research organizations
• Religious institutions

Public charities offer valuable giving opportunities because they can significantly impact your wider community.