How Does Charitable Giving After Death Work?

Charitable giving after death, often called planned giving, is a method of supporting philanthropic causes through an estate plan, allowing an individual to leave a lasting legacy. This approach provides needed resources to nonprofit organizations and can also offer financial advantages to the estate. By planning these gifts, individuals can reduce the estate’s tax burden, maximizing the value of assets distributed to both charitable and non-charitable beneficiaries.

Methods of Post-Mortem Charitable Giving

The most common way to leave a charitable gift is through a bequest in a will or a living trust, which provides formal instructions for asset distribution. A specific bequest designates a particular piece of property, like a block of stock or a sum of money, to a charity. A percentage bequest gives a certain percentage of the total estate value to a charitable organization. A residuary bequest is made from the remainder of the estate after all other debts, expenses, and specific gifts to individuals have been paid. All bequests must be clearly stated in a valid will or trust to be legally enforceable.

Another method is through beneficiary designations on financial accounts like IRAs, 401(k)s, and life insurance policies. Naming a charity as the beneficiary allows the assets to pass directly to the organization upon the owner’s death. This transfer occurs outside of the court-supervised probate process, making it a faster and more private way to make a gift. The process involves filling out a form provided by the financial institution.

For complex planning, charitable trusts offer a structured way to make a gift. A Charitable Remainder Trust (CRT) places assets into an irrevocable trust that makes payments to an individual for a set term or for life. When the term ends, the remaining assets are distributed to the designated charity. A Charitable Lead Trust (CLT) operates in reverse, making payments to a charity for a specified period before the remaining assets are transferred to non-charitable beneficiaries. Both trusts are governed by IRS rules and require drafting by a legal professional.

Assets Suitable for Charitable Donation

A posthumous charitable gift can be made with cash, either as a specified dollar amount or a portion of the estate’s cash assets. A cash gift is straightforward for the executor to administer, involving a direct transfer of funds from the estate to the charity.

Donating appreciated securities like stocks and bonds held for more than one year is a strategic choice. A qualified charity can sell these assets without paying the capital gains tax that would normally be due. This allows the full value of the securities to support the charity’s mission.

Retirement accounts like traditional IRAs and 401(k)s are excellent assets for charitable giving. These accounts contain pre-tax funds subject to income tax when withdrawn by an individual. Naming a charity as the beneficiary is tax-efficient because the tax-exempt organization will not have to pay income tax on the distribution.

Real estate, such as a primary residence or commercial property, can be donated to charity after death. Tangible personal property like valuable art or jewelry can also be gifted. For these non-cash assets, a formal appraisal is required to determine their fair market value for tax purposes, and the executor is responsible for obtaining it.

Tax Implications for the Estate

A primary tax benefit of posthumous charitable giving is the unlimited estate tax charitable deduction. Federal law allows any assets left to a qualified 501(c)(3) organization to be fully deducted from the decedent’s gross estate. This deduction is subtracted from the estate’s total value before any tax is calculated, which can reduce or eliminate federal estate tax liability.

The federal estate tax exemption is the amount an individual can leave to heirs tax-free. For 2025, this exemption is $13.99 million per person, so estates valued below this are not subject to federal estate tax. However, some states have their own estate or inheritance taxes with lower exemptions, where the charitable deduction can also be beneficial.

Income in Respect of a Decedent (IRD) is an important income tax consideration, referring to income the decedent was entitled to but had not yet received at death, such as funds in a traditional IRA. An individual heir who inherits an IRA must pay income tax on distributions. When a charity is the beneficiary, it receives the funds without income tax being due. This strategy directs a highly-taxed asset to a tax-exempt entity, allowing more tax-favored assets to pass to family members.

To claim the estate tax charitable deduction, the executor must meet IRS reporting requirements. All charitable gifts are reported on the federal estate tax return, Form 706. The executor must also obtain a formal written acknowledgment from the recipient organization for each gift before filing. This document serves as proof and must include:

• The name of the charity
• The date of the contribution
• A description of the property received
• The amount of the gift, if it was cash

Executing the Charitable Gift

The executor of a will or trustee of a trust is responsible for fulfilling a decedent’s charitable wishes. As a fiduciary, this person has a legal duty to manage and distribute estate assets according to the planning documents. The first step is to review the will or trust to identify all charitable bequests, the named charities, and the assets they are to receive.

The process for transferring assets varies by gift type. For a cash bequest, the executor writes a check from the estate’s account. For securities, the executor works with the brokerage firm to transfer the shares to the charity. For a retirement account or life insurance policy, the executor contacts the custodian or insurance company to initiate the beneficiary claim process for the charity.

The executor must communicate any conditions the decedent placed on a gift. A donor may have specified a gift be used for a particular program, which is a restricted gift. An unrestricted gift gives the charity flexibility to use the funds where most needed. The executor must ensure the charity is aware of and agrees to any restrictions before completing the transfer.

After all debts, expenses, and distributions are made, the executor prepares a final accounting. This document records all the estate’s financial activities, from the initial asset inventory to the final payments. The final accounting is submitted to the probate court and all beneficiaries to confirm that charitable bequests were properly executed.