2014 Giving Guide: The Bank of Missouri Investments & Retirement Planning Division

When developing your estate plan, leaving money to charity can give you a sense of personal satisfaction and can save you money in estate taxes.

The federal government taxes transfers of wealth during your life and at your death. Minimizing transfer taxes takes careful planning, and charitable giving can play an important role in your estate plan. By leaving money to charity the full amount of your charitable gift may be deducted from the value of your taxable estate.

The easiest and most direct way to make a charitable gift is by an outright bequest of cash in your will, which requires only a short paragraph in your will that names the charitable beneficiary and states the amount of your gift. The outright bequest is especially appropriate when the amount of your gift is relatively small, or when you want the funds to go to the charity without strings attached.

If you have funds in an IRA or employer-sponsored retirement plan, you can name your favorite charity as a beneficiary, which can provide double tax savings. First, the charitable gift will be deductible for estate tax purposes. Second, the charity will not have to pay any income tax on the funds it receives. This double benefit can save combined taxes that otherwise could eat up a substantial portion of your retirement account.

Another way to make charitable gifts is to create a charitable trust. The most common of these are the charitable lead trust and the charitable remainder trust.

A charitable lead trust pays income to your chosen charity for a certain period of years after your death. Once that period is up, the trust principal passes to your heirs. The trust is known as a charitable lead trust because the charity gets the first, or lead, interest.

A charitable remainder trust is the mirror image of the charitable lead trust. Trust income is payable to your heirs for a period of years after your death or for the lifetime of one or more beneficiaries. Then, the principal goes to your favorite charity. The trust is known as a charitable remainder trust because the charity gets the remainder interest. Depending on which type of trust you use, the dollar value of the lead (income) interest or the remainder interest produces the estate tax charitable deduction.

A charitable remainder trust takes advantage of the fact that lifetime charitable giving generally results in tax savings when compared to testamentary charitable giving. A donation to a charitable remainder trust has the same estate tax effect as a bequest because, at your death, the donated asset has been removed from your estate. Be aware, however, that a portion of the donation is brought back into your estate through the charitable income tax deduction.

Also, a charitable remainder trust can be beneficial because it provides your family members with a stream of current income--a desirable feature if your family members won’t have enough income from other sources.

For examples on how each of these tax-saving devices can help you, contact The Bank of Missouri Investments & Retirement Planning Division at 417.882.4800, or stop in at 2760 S. Kansas Expressway in Springfield. One of our experts will be happy to review the assets in your estate and determine how you can reduce your tax burden and help you attain personal satisfaction by including charitable contributions in your plan.