When Should You Give to Charity? Lifetime Giving vs. Estate Planning (Copy)
Once you've decided to support charitable causes, the next question is: when should you make your donations? Should you give during your lifetime, or include charitable bequests in your estate plan? Or perhaps a combination of both?
The timing of your charitable giving matters, and there are distinct advantages and drawbacks to each approach. Understanding these can help you make informed decisions that align with your financial situation, your charitable goals, and your tax planning strategy.
Giving During Your Lifetime: Immediate Impact and Tax Benefits
Lifetime charitable giving means making donations while you're still alive, whether that's through regular contributions, one-time gifts, or strategic donations of appreciated assets.
The Benefits of Lifetime Giving
Charities have immediate use of funds: When you donate during your lifetime, organizations can put your money to work right away. You're not asking them to wait—they can use your contribution today to fund programs, serve people in need, or advance their mission.
You can see your funds at work: There's something deeply satisfying about witnessing the impact of your generosity. You can visit the scholarship recipients your donation supports, see the new building your gift helped construct, or read about the research your contribution funded. This immediate feedback can be incredibly meaningful and can help you refine your giving strategy over time.
You retain control over your charitable giving: Life circumstances change. The causes you care about might evolve. Organizations you once supported might shift their focus in ways that no longer align with your values. When you give during your lifetime, you maintain the flexibility to redirect your charitable dollars as your priorities change.
You can reduce income taxes: Charitable donations made during your lifetime are typically tax-deductible, reducing your taxable income for the year. For high-income earners, this can result in significant tax savings. Additionally, certain strategies—like donating highly appreciated stock or directing Required Minimum Distributions from retirement accounts to charity—can provide even greater tax benefits.
The Drawbacks of Lifetime Giving
You deplete your available funds: This is the primary concern most people have about lifetime charitable giving. When you donate money today, that's money you no longer have available for your own living expenses, healthcare needs, or unexpected emergencies.
For many people, especially those in or approaching retirement, ensuring they have enough to live comfortably for the rest of their lives is the top priority. Charitable giving, while important, needs to be balanced against personal financial security.
The key is to give thoughtfully and strategically. Work with your financial advisor to determine how much you can afford to donate without compromising your own financial well-being.
Giving on Your Death: Legacy and Tax Savings for Your Heirs
Testamentary giving—making charitable donations through your estate plan—means your gifts won't be distributed until after you die.
The Benefits of Giving Through Your Estate
You leave a meaningful legacy: Even after you're gone, your charitable giving continues. Your estate plan allows you to support causes you care about for years to come, creating a lasting legacy that reflects your values and priorities.
You continue supporting important causes: The work of charitable organizations doesn't end when you do. By including charitable bequests in your estate plan, you ensure that organizations you care about continue to have the resources they need to pursue their missions.
You reduce income and estate taxes for your loved ones: Here's where estate planning gets particularly strategic. Certain assets—especially tax-deferred retirement accounts—create a significant income tax burden for your beneficiaries when they inherit them. If you leave these accounts to charity instead, no income tax is owed, and your loved ones can inherit other assets that don't carry the same tax consequences.
Additionally, for those with estates large enough to be subject to federal estate taxes (currently $14 million for individuals and $28 million for married couples), charitable bequests can reduce the size of your taxable estate, potentially saving hundreds of thousands or even millions of dollars in estate taxes.
The Drawbacks of Giving Through Your Estate
Charities don't benefit until after you die: This is the most obvious downside. Organizations you care about won't receive your donation until you're no longer here to see the impact. For people who want to witness the results of their giving, this delay can feel unsatisfying.
Less flexibility: Once you die, your charitable intentions are locked in based on what you specified in your estate plan. You can't adjust your giving based on changing circumstances or new information about the organizations you've supported.
The Best of Both Worlds: A Combined Approach
For many people, the optimal charitable giving strategy combines both lifetime giving and testamentary giving.
You might choose to:
Make modest annual donations during your lifetime to organizations you care about, allowing you to see your impact and stay connected with causes that matter to you
Direct your Required Minimum Distributions from retirement accounts to charity during retirement, satisfying your RMD requirement while supporting good causes
Include larger charitable bequests in your estate plan, particularly by naming charities as beneficiaries of tax-deferred retirement accounts
Establish a donor-advised fund during your lifetime, contribute to it periodically, and name your children or grandchildren as successor advisors who can continue directing grants after you're gone
This approach allows you to enjoy the satisfaction of giving during your lifetime while also leaving a substantial legacy and maximizing tax benefits for your heirs.
Special Strategy: Charitable Giving with Required Minimum Distributions
If you're age 73 or older and have tax-deferred retirement accounts, you're required to take Required Minimum Distributions (RMDs) each year. These distributions count as taxable income, which can push you into a higher tax bracket or increase your Medicare premiums.
But there's a powerful strategy available: you can donate up to $108,000 of your RMD directly to charity through what's called a Qualified Charitable Distribution (QCD). The funds must go directly from your IRA to the charity—not to you first—but this satisfies your RMD requirement without increasing your taxable income.
This strategy offers the best of both worlds: you're giving during your lifetime (so you can see the impact), but you're doing it in a way that provides significant tax benefits.
What's Right for You?
The decision of when to give to charity is deeply personal and depends on your unique financial situation, your charitable goals, and your desire to witness the impact of your giving.
If financial security is your primary concern, focusing on testamentary giving through your estate plan might make the most sense. You can be generous to charity without compromising your own quality of life.
If seeing the impact of your giving is important to you, lifetime giving—even if modest—can provide tremendous personal satisfaction.
And if you have the resources, a combined approach allows you to enjoy the benefits of both strategies.
Shaila Buckley Law helps individuals and families throughout Idaho develop charitable giving strategies that align with their values and financial goals. If you'd like to discuss the timing of your charitable giving, contact us at 208.995.9224.