Giving back is a big priority for many Georgia families, and charitable giving becomes an important component of estate planning. The manner in which a family handles those contributions, however, can make a big difference in the taxation bottom line. There are ways to structure wills to pass wealth along to one’s chosen charitable organizations while also reducing the tax burden for heirs.
A common estate planning mistake involves thinking more about how to divide wealth between beneficiaries than the details of how to portion out those allocations. It’s important to understand that not all assets carry the same tax burden. Take, for example, a family that intends to pass down the family home, an after-tax savings account, and an IRA. To simplify things, imagine that all three of those assets have an individual value of $1 million.
Many families simply stipulate that a portion of the after-tax savings account will go to the designated charities. In this example, assume that amount is $100,000, which would leave $900,000 to the heirs. However, the heirs could rack up quite a tax bill on the IRA, depending on how they choose to handle distributions.
A better approach would be to give the charity $100,000 of the IRA, leaving the full amount of the after-tax savings account to the heirs. Such a change doesn’t alter anything for the charitable organization, which doesn’t have to pay taxes on either form of contribution. But it does help the heirs by preserving the entirety of the after-tax savings asset and taking the contribution out of the higher taxed IRA.
These types of simple changes can make a big difference in the bottom line of an inheritance. By sitting down with a skilled estate planning attorney, Georgia families can structure their wills and other documents in a way that makes the most of their accumulated wealth. Unless, of course, the government is also an intended beneficiary, which is rarely the case.