An estate plan indicates what you want to do with your assets after you are gone. Depending on your goals, you may want to leave some funds or other assets to charity. It’s possible to create estate plans with charities as beneficiaries. A financial advisor could help you include charitable donations as part of your estate plan.
Can You Name a Charity as a Beneficiary?
When creating an estate plan, you might first think of your loved ones as the primary beneficiary. But that’s not the only option. You can choose to leave your assets to entities, which include nonprofits and charities.
So, there’s nothing stopping you from leaving some or all of your assets to a charity of your choice. And it’s a popular choice!
According to the Giving USA study published by the Lilly Family School of Philanthropy at Indiana University, charitable bequests in 2021 totaled an estimated $46,01 billion. Although that number declined by 7.3% from 2020, it’s still one of the biggest years for charitable bequests on the books. But that’s a relatively small portion of the estimated $484.85 billion donated to charity across the U.S. in 2021.
How to Name a Charity as a Beneficiary
Naming a charity as a beneficiary for your estate can be straightforward. Here are three steps to take:
Research charities. Before you commit to a particular charity, dive into the research. Although many charities do what they say they will with the funds, that’s not always the case. So, it’s important to look for the signs of a charity scam before including it in your estate plan. Some of the worst charities spend less than 10% of their donations on direct aid to their constituents.
Determine your gift. Take a look at your overall estate. How much do you want to leave to charity when you take other beneficiaries into consideration? A few options include a specific dollar amount, specific assets, or a percentage of your overall estate. Before leaving a particular asset, like a car or house to a charity, make sure they are able to accept that kind of donation. Many charities are willing to make it work. But some simply don’t have the resources to accept and liquidate large assets.
Name the charity and the gift in your estate plan. If you name the charity in your will or living trust, the donation will happen after you pass away. The executor of the estate will transfer the appropriate share of the assets as a part of their duties.
Should You Use a Trust 0r Will?
A living trust is an entity that you set up within your lifetime to hold assets after your death. As a separate legal entity, your assets will be distributed from this entity when the time comes.
On the other hand, a will is a more straightforward legal document that assigns assets to beneficiaries. When you craft either a will or a living trust, you can make provisions for the charity of your choice.
A financial planner can help you determine if a will or living trust is the better option for your unique situation. Generally, a living trust is used if you want to avoid probate for a complicated arrangement of assets. But a will is the simpler choice and very effective with small estates.
Reach Out to the Charity
Before finalizing your estate plans, take the time to reach out to the charity you intend to donate to. Although this step isn’t required, it’s very important to preemptively hammer out any necessary details on the charity’s side.
If you plan to donate a very large sum of money or a complex asset, like a piece of real estate, then it’s especially critical to reach out to the charity. They may need to make plans for those funds or may not be able to accept certain assets based on their by-laws.
Finally, many charities relish the chance to thank their donors. When you reach out early, the charity’s staff can develop a relationship with you and convey their sincere thanks.
A charitable bequest to a worthy cause is an enticing opportunity. When mapping out your estate plan, you can choose to leave any portion of your assets to a charity organization. And depending on your estate plan goals, you could also designate a charity as a beneficiary.
Estate Planning Tips
- A financial advisor can help you build the most efficient path to include a charity as a beneficiary in your estate. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you have a sizable estate, estate taxes could be hefty. One option to maximize your estate for your heirs can be to gift portions to them or even set up a trust.
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