Can a Charity Be a Beneficiary of an Estate?

Charitable giving allows you to leave a lasting legacy while supporting the causes you care about, and doing so can have meaningful benefits for both the organizations you support and your estate plan.

Drawing inspiration from Thrivent’s article, "Can a charity be a beneficiary? Leaving your assets to an organization," this blog explores how San Antonio residents can incorporate charitable giving into their estate plans with the help of McCammon Law.

How Charitable Giving Fits Into Estate Planning

Naming a charity as a beneficiary allows you to make a lasting impact on your community while potentially gaining tax advantages. You can designate a charity as a beneficiary for various assets, including:

• Retirement Accounts: IRAs, 401(k)s, and 403(b)s
• Life Insurance Policies: Cash value or death benefits
• Annuities
• Bank and Brokerage Accounts
• Real Estate
• Automobiles

Charitable beneficiaries fall under the category of "not designated beneficiaries," meaning they don’t receive the same tax treatment as individual heirs. However, strategic planning can maximize the benefits for both the charity and your estate.

Methods for Including Charities in Your Estate Plan

There are multiple ways to name a charity as a beneficiary:

1. Direct Beneficiary Designation

This is the simplest approach. You can name a charity directly on beneficiary forms provided by your account custodian, such as for a life insurance policy or retirement account.

2. Donor-Advised Funds

A donor-advised fund allows you to leave assets to a fund that distributes them to charities over time. This strategy can provide sustained support for causes important to you.

3. Trusts with Charitable Beneficiaries

You can create a trust and name both individuals and charities as beneficiaries. For example, you might specify that a percentage of the trust’s assets go to your children, while the remainder supports charitable organizations.

4. Contingent Beneficiaries

Charities can also serve as contingent beneficiaries, receiving assets if a primary beneficiary predeceases you.

By working with an estate attorney, you can explore these options to align your charitable goals with your estate plan.

Real-Life Examples of Charitable Giving

Charitable estate planning is a deeply personal process. Here are two approaches shared in Thrivent’s article:

• Direct Donations: A couple left their pretax IRA to a donor-advised fund benefiting their church and two other charities, while their other assets went to their children.
• Planned Giving: Diane Jaeger used a donor-advised fund as the beneficiary of a life insurance policy, ensuring long-term financial support for her church.

These examples highlight how creative planning can make a meaningful difference while maintaining flexibility for your family’s needs.

Tax Benefits of Charitable Giving

Naming a charity as a beneficiary can offer potential tax benefits for your estate:

1. Reduce Taxable Estate Size

By donating assets to charity, you may decrease the size of your taxable estate, which could reduce or eliminate estate taxes.

2. Minimize Taxes on Retirement Accounts

If your heirs inherit a pretax retirement account, they may owe significant taxes on withdrawals. Charities, however, don’t pay income taxes on inherited retirement assets, making them an efficient beneficiary for these accounts.

3. Qualified Charitable Distributions (QCDs)

If you are age 70½ or older, you can make QCDs directly from your IRA to a charity. These distributions count toward your required minimum distributions (RMDs) and are excluded from your taxable income.

Avoiding Common Mistakes

To ensure your charitable giving aligns with your intentions, avoid these common errors:

• Failing to Specify Beneficiaries: Clearly name charities as beneficiaries and provide backup beneficiaries to avoid confusion.
• Overlooking Tax Implications: Some charitable gifts may not qualify for immediate tax deductions. Consulting a tax professional can help you plan effectively.
• Not Updating Beneficiary Forms: Regularly review and update your beneficiary designations, especially after major life events like marriage or the birth of a child.

How McCammon Law Can Help

Incorporating charitable giving into your estate plan requires careful planning. At McCammon Law, we guide San Antonio residents through the process, helping you craft an estate plan that aligns with your values while ensuring your family’s financial security. Whether you’re setting up a trust, naming beneficiaries, or exploring tax-saving strategies, our expertise will help you achieve your goals.

Create a Legacy That Lasts

Charitable giving is more than a financial decision—it’s a way to make a difference in the lives of others. By naming a charity as a beneficiary, you can ensure that your legacy reflects your values and continues to impact your community.

Ready to take the next step? Contact McCammon Law to learn how charitable giving fits into your estate plan.

Request a Consultation today to start building your legacy.