No matter the value of assets you own at the end of life, you may want to protect that legacy for your heirs. Some individuals in Dallas, Texas, may also want to make an ongoing impact on the community through charitable donations. Estate tax planning lets you accomplish both goals if you understand the tax laws and requirements on your estate.
Bequeathing money to a charity does reduce the size of your estate, which in turn reduces the amount of value you pass on to loved ones. However, reducing your estate could mean loved ones end up with more value in the end due to the way estates are taxed. If your estate extends beyond tax thresholds, you can save loved ones a large portion of inheritance tax by giving away money to bring the inheritance under the thresholds.
One way to handle such a transaction is to donate an IRA account to charity. Heirs who receive distributions from an IRA would likely have to pay some type of income tax on the money. However, IRA transactions can fall into complicated areas, so it’s never a good idea to take such action without a full understanding of the tax and financial implications.
When leaving money to charity through a will, trust, or other estate-planning document, be specific and clear about your wishes. Prepare family members ahead of time by discussing the reasons for your actions and how those actions may benefit them. Heirs who understand your wishes and how the estate will work are less likely to battle each other over estate details and cause a hold up or problems in probate.
Source: My Generation, “Leaving assets to charity? Be precise” No author given, Mar. 06, 2014
