When you are planning your estate, you have a lot to think about, and your family will invariably come first. This being stated, charitable giving can be quite meaningful on a personal level when you support causes and/or institutions that are doing good things for others.
When you work charitable giving into your estate plan, you will always be remembered for your benevolent nature, and this is a powerful legacy.
Estate Tax and Gift Tax Considerations
In addition to the emotional and spiritual rewards, there are tax advantages that go along with acts of charitable giving. There is a state-level estate tax in Connecticut with a $9.1 million exclusion in 2022. This is the amount that can be transferred tax-free.
Any portion of your estate that exceeds the exclusion would potentially be subject to taxation. There is another estate tax on the federal level, so your estate can potentially be taxed from two different directions.
The federal estate tax exclusion is at a record high $12.06 million right now, and the maximum rate is 40 percent.
There is a federal gift tax that is unified with the estate tax, so you cannot give large gifts to avoid taxation. As luck would have it, Connecticut is the only state in the union that has a state-level gift tax, so this is another consideration.
If you are going to be exposed to estate taxes, you can provide resources to charitable causes that would otherwise be going to the government. In addition to this element, a charitable lead trust can be used to support a charity and facilitate a transfer to a noncharitable beneficiary in a tax efficient manner.
With regard to the federal gift tax, there is a separate $16,000 annual exclusion that can be used to give this much to any number of people tax-free each year. As long as you do not give more than this amount to any one person, you would not be using a portion of your multimillion-dollar exclusion.
A married couple would be able to give as much as $32,000 to any number of people tax-free each year. This will add up over time, and you can use this exclusion to fund certain types of tax efficiency trusts.
Private Foundation
Getting back to the matter of charitable giving, you may want to consider the formation of a private foundation. Contrary to popular belief, you do not have to be a billionaire to create a foundation in your name.
Most foundations in the United States are funded with less than $1 million, but you should have at least $500,000 that you are willing to put into the foundation. You get an income tax break while you are assisting worthwhile causes, and family members can work for the foundation.
Donor Advised Funds
Another option is a donor advised fund. You make a single contribution into the fund, and you get a tax deduction for that year, even if no contributions are made during that calendar year.
As the donor, you have the right to ask the fund to use your assets to support specific nonprofit entities. Everything is simplified, because you do not have to make separate contributions to a number of different entities.
If you have a private foundation, there are administration costs that can be considerable. On the other hand, the people that are contributing into donor advised funds share the administrative expenses, so this is a very efficient way to donate assets to charity.
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The best way to make the initial connection with our firm is to attend one of our seminars. They are held at very comfortable locations around our service areas, and there is no charge, so you should definitely register for the session that works for you.
You can see the dates and obtain more information if you visit our seminar page.
Need Help Now?
If you are ready to take the ultimate step and work with a Glastonbury, CT estate planning lawyer to put a plan in place, we can help. You can send us a message to request a consultation appointment, and we can be reached by phone at 860-548-1000.
Mr. Nirenstein is licensed to practice before the courts of the State of Connecticut and the United States District Court. He is a member of the Connecticut and Hartford County Bar Associations, and the Estate and Probate, Elder Law, Business Law and Real Estate Sections of the Connecticut Bar Association.