The federal government imposes estate and gift taxes on certain transfers of wealth during life and at death. However, not every estate is subject to federal estate tax.
For 2026, the federal estate and gift tax exemption is $15 million per individual, and the top federal estate and gift tax rate is 40%. The exemption is adjusted for inflation, and qualifying married couples may be able to use both spouses’ exemptions through appropriate planning.
Some states also impose estate or inheritance taxes, which may apply at lower thresholds.
Charitable contributions can affect estate taxes because qualifying gifts to eligible charitable organizations generally reduce the value of an estate subject to federal estate tax.
However, an important distinction is that an estate tax deduction is not the same as an income tax deduction. Tax treatment depends on when the gift is made, the assets involved, and the recipient organization.
For individuals whose estates fall below applicable tax thresholds, charitable giving may offer little or no estate tax benefit. The decision may instead be driven primarily by personal values and legacy goals.
Leave a Charitable Bequest in Your Will or Trust
One of the most straightforward ways to incorporate charitable giving into an estate plan is to name a qualified charitable organization as a beneficiary in your will or revocable living trust.
You can generally designate:
- A specific dollar amount.
- A percentage of your estate.
- A particular asset.
- A portion of the estate remaining after other distributions.
For example, someone may choose to leave a percentage of their estate to a favorite nonprofit while directing the remaining assets to family members.
A charitable bequest allows you to retain control of your assets during your lifetime and generally can be modified as your circumstances or priorities change.
What to consider: Clearly identifying the organization and reviewing the provision periodically can help ensure the gift reflects your intentions. If you want the funds used for a specific purpose, discuss the restriction with the organization before finalizing your estate documents.
Name a Charity as a Retirement Account Beneficiary
Retirement accounts can be another option for charitable giving, particularly when they contain money that has not yet been taxed.
When an individual inherits a traditional IRA or certain retirement plan assets, distributions are generally subject to income tax. By contrast, a qualifying tax-exempt charity can generally receive distributions from inherited retirement accounts without paying federal income tax on the funds.
Naming a charity as a beneficiary may therefore allow more of the account’s value to support the intended cause.
For example, someone planning to leave assets to both family members and a charity might consider directing traditional IRA assets to charity while leaving other assets to heirs. Depending on the circumstances, this arrangement may be more tax-efficient than dividing every account equally.
What to consider: Beneficiary designations generally control how retirement accounts are distributed, even when a will contains different instructions. Review account beneficiaries regularly, especially after major life changes.
Consider a Donor-Advised Fund
A donor-advised fund (DAF) is a charitable giving account maintained by a sponsoring charitable organization.
You can contribute eligible assets to the fund during your lifetime and recommend grants to qualified charities over time. Depending on the sponsoring organization, you may also be able to establish a succession plan that allows designated family members to recommend future grants.
Contributions to a DAF may qualify for an income tax deduction, subject to applicable rules and limitations. Once contributed, however, the assets are irrevocably owned and controlled by the sponsoring organization.
A DAF may appeal to individuals who want to organize their charitable giving, involve family members in philanthropy, or support multiple organizations over time.
What to consider: DAFs typically involve administrative or investment fees. Donors retain advisory privileges rather than legal control over distributions, and the sponsoring organization must approve grants.
Explore Charitable Trusts
Charitable trusts may allow individuals to provide financial benefits to family members while also supporting charitable organizations.
Two common structures are charitable lead trusts and charitable remainder trusts.
Charitable Lead Trust (CLT)
A charitable lead trust generally makes payments to a qualified charity for a specified period. When the term ends, any remaining assets pass to designated beneficiaries, such as children or grandchildren.
Depending on how the trust is structured and how its assets perform, a CLT may help transfer wealth to heirs while supporting charitable causes.
Charitable Remainder Trust (CRT)
A charitable remainder trust generally provides payments to one or more noncharitable beneficiaries for a specified period or lifetime. When the payment period ends, the remaining assets pass to charity.
A CRT may be considered when someone wants to contribute appreciated assets, establish a payment stream, and support a charitable organization.
Certain CRTs can sell contributed appreciated assets without immediately recognizing capital gains tax at the trust level. However, payments to beneficiaries may be taxable, and the overall tax consequences depend on the trust’s structure and distributions.
What to consider: Charitable trusts involve legal requirements, administrative responsibilities, ongoing costs, and limitations on access to contributed assets. They are generally more complex than a charitable bequest or beneficiary designation.
Consider Charitable Giving During Your Lifetime
Not every charitable contribution needs to occur after death.
Lifetime giving allows you to support organizations while seeing the potential impact of your contributions. Depending on your circumstances, donating cash or appreciated investments may also provide income tax benefits.
For 2026, federal income tax rules include a deduction for certain cash contributions by eligible taxpayers who do not itemize, subject to dollar limits. Taxpayers who itemize are generally subject to a new charitable deduction threshold based on adjusted gross income, along with other applicable limitations.
Giving appreciated investments held for more than one year may offer additional tax advantages in certain situations, although deduction limits and valuation rules apply.
What to consider: Before making a significant lifetime gift, evaluate your retirement income needs, liquidity, and financial obligations. A charitable contribution should fit within your broader financial plan.
How Do You Choose a Charitable Giving Strategy?
The appropriate approach depends on your financial circumstances, philanthropic interests, and estate planning priorities.
Before making a decision, consider a few questions:
- What do you want your gift to accomplish? Decide whether you want to support a specific organization, fund an ongoing initiative, or give future generations a role in philanthropy.
- When do you want to give? Lifetime contributions may allow you to see their impact, while estate gifts preserve access to assets during your lifetime.
- Which assets are available? Cash, investments, retirement accounts, and other property can have different tax implications.
- How will your plans affect loved ones? Consider how charitable gifts fit alongside financial support for family members and other beneficiaries.
- How much complexity is appropriate? A beneficiary designation may be sufficient for one goal, while a trust may be appropriate for a more involved estate plan.
Working with financial, tax, and estate planning professionals can help you evaluate the available options and coordinate your charitable intentions with your broader financial goals.
The Bottom Line
Charitable giving can be a meaningful part of estate planning, whether your goal is to support a favorite organization, establish a family tradition of giving, or potentially reduce taxes.
The key is understanding that the value of charitable giving extends beyond potential tax savings. A well-considered strategy should reflect your priorities while accounting for your financial needs and the people who depend on you.
At Navalign Wealth Partners, we can help you explore how charitable giving may fit into your broader financial plan and coordinate with your tax and estate planning professionals to support your long-term goals.