When crafting your estate plan, consider the lasting difference you can make by giving back. Charitable giving not only helps causes you care about but can also bring you a sense of purpose and provide valuable tax benefits.

A Few Words About Transfer Taxes

The federal government taxes certain wealth transfers you make to others, both during your life and at death. In addition, a separate generation-skipping transfer (GST) tax applies to transfers made to grandchildren or lower generations.

The federal estate and gift tax exemption for 2025 is $13.99 million and $15 million in 2026, and the top tax rate is 40%. State-level estate or inheritance taxes may also apply, depending on where you live.

Charitable giving can be a powerful tool for reducing transfer taxes. In many cases, the full value of a qualifying charitable gift can be deducted from your taxable estate, potentially lowering your overall estate tax liability.

Make an Outright Bequest in Your Will

The simplest way to leave a charitable gift is through an outright bequest in your will. This requires only a short provision naming the charitable beneficiary and stating the amount or percentage of your estate to be given.

An outright bequest works well when:

• The gift amount is relatively small.
• You want the charity to have full flexibility in using the funds.

Name a Charity as the Beneficiary of an IRA or Retirement Plan

Retirement accounts are often highly taxed when passed to individual heirs, but charities can receive them tax-free. By naming a charity as a beneficiary of your IRA or 401(k), you can:

• Remove the account value from your taxable estate.
• Avoid income tax on the funds when distributed to the charity.

This “double benefit” can save a substantial amount in combined income and estate taxes, making it an efficient asset to leave for philanthropic purposes.

Use a Charitable Trust

Charitable trusts allow you to provide for both your loved ones and charitable causes while gaining potential tax benefits.

Charitable Lead Trust (CLT):

• Pays income to your chosen charity for a set number of years.
• At the end of the term, the remaining assets pass to your heirs—often with reduced estate or gift tax impact.
• Works well if you expect the trust assets to grow over time.

Charitable Remainder Trust (CRT):

• Pays income to you or your beneficiaries for a set period or lifetime.
• After the income term ends, the remaining assets go to your chosen charity.
• Useful for converting appreciated assets into an income stream while avoiding immediate capital gains taxes.

Both structures require precise planning and valuation to maximize the charitable deduction while meeting your family’s needs.

Why Charitable Giving Belongs in Estate Planning

Charitable giving in your estate plan can:

• Reduce estate and gift tax exposure.
• Support causes aligned with your values.
• Create a philanthropic legacy for future generations.
• Potentially provide income to your family during their lifetimes.

The Takeaway

Every financial journey is unique, and charitable giving can be a powerful way to make a lasting impact while aligning with your estate, tax, and legacy goals.

Navigating the options—whether it’s a simple bequest, retirement account beneficiary designation, or complex trust structure—requires careful consideration and expert guidance.

Navalign Wealth Partners is here to help answer your questions and guide you through the choices, so you can feel confident your legacy reflects your wishes.