Charitable Giving and Estate Planning: Strategies to Maximize Your Legacy and Reduce Taxes

Guidance from a Birmingham, Alabama estate planning law firm.

For many individuals and families, charitable giving is about more than a tax deduction — it is a way to make a lasting impact and reflect deeply held values. Thoughtful planning can allow you to support the causes you care about while protecting your loved ones and preserving your estate. Listed below are some of the most common strategies.

*Important Note: Each charitable giving strategy has specific tax consequences, which can vary based on your income, assets, and overall estate plan. It is essential to work closely with your estate planning attorney, accountant, and financial advisor to determine the approach that best fits your goals.

1. Naming a Charity in Your Will or Trust

One of the simplest ways to leave a charitable gift is to name a charitable organization as a beneficiary in your will or revocable living trust. You can give a specific dollar amount, a percentage of your estate, or a particular asset, such as real estate or investment accounts.

Pros:

• Easy to include or amend as your priorities change.

• May reduce estate tax liability for larger estates.

• Allows you to maintain full control of your assets during your lifetime.

  
  

Cons:

• The charity does not benefit until after your death.

• The gift may be subject to delays if your estate goes through probate.

  
  

2. Beneficiary Designations

Many assets — such as IRAs, 401(k)s, annuities, and life insurance policies — can pass outside of probate through beneficiary designations. By naming a charity as a primary or contingent beneficiary, you can create a direct, tax-efficient gift.

Pros:

• Avoids probate entirely, allowing a faster transfer to the charity.

• Can reduce the taxable portion of your estate.

• Charities receive retirement account proceeds tax-free, whereas individual heirs are taxed on distributions from traditional IRAs (but not from Roth IRAs).

• Simple to update through your account custodian.

  
  

Cons:

• These strategies can be complex and may require significant coordination between your attorney, accountant, and financial advisor.

• If not coordinated with your overall estate plan, this can unintentionally skew distributions.

  
  

3. Gifts During Your Lifetime

For those who want to see their charitable impact firsthand, lifetime giving can be especially rewarding. A direct gift to a qualified charity (generally a 501(c)(3) organization) may allow you to claim a tax deduction. Before making a gift, consult with your accountant to determine the amount you will be eligible to deduct.

Pros:

• Allows you to witness the impact of your generosity during your lifetime.

• May provide an immediate charitable income tax deduction.

• May reduce the overall size of your taxable estate.

• Enables personal involvement and recognition by the charity.

  
  

Cons:

• Reduces assets available for personal use or inheritance.

• May complicate long-term financial planning if not carefully coordinated with your overall estate plan.

  
  

Charitable Giving Options for Individuals with Larger Estates

For those with significant assets, charitable giving can be an effective way to reduce taxes both during life and after death. Before moving forward with any strategy, be sure to consult with your accountant, financial advisor, or attorney to determine the best fit for your situation.

1. Charitable Remainder Trusts

A charitable remainder trust is an irrevocable trust that allows you (or someone you choose) to receive income from assets placed in the trust for a specified period. When the trust ends, the remaining balance goes to the charity of your choice.

Pros:

• Provides income to you or loved ones for a specified period.

• May reduce or eliminate capital gains taxes on appreciated assets.

• Removes the asset from your taxable estate.

  
  

Cons:

• More complex to set up and administer than a simple bequest.

• Once assets are transferred to the charitable remainder trust, they cannot be retrieved.

• Requires careful trust administration and annual filings.

  
  

2. Charitable Lead Trusts

A charitable lead trust is an irrevocable trust designed to provide financial support to one or more charities for a set period of time. After the trust term ends, any remaining assets are distributed to your chosen beneficiaries—typically children or other family members.

Pros:

• Allows you to support charitable causes now while preserving assets for future generations.

• Can significantly reduce gift and estate taxes on the assets ultimately transferred to your beneficiaries.

  
  

Cons:

• Because the trust is irrevocable, you cannot change its terms once it is created.

• The setup and administration can be complex and often require coordination with legal and tax professionals.

3. Donor-Advised Funds

A donor-advised fund allows you to make charitable contributions during your lifetime to a fund that is invested and managed by a fund manager. You make an irrevocable contribution to the fund, receive a tax deduction, and recommend grants to qualified charities over time.

Pros:

• Simple, flexible way to give on your own timeline.

• Avoids the administrative burden of creating a private foundation.

• Offers anonymity if desired.

  
  

Cons:

• The contribution is irrevocable.

• Control is limited — technically, the fund sponsor retains control over charitable distributions.

• Does not provide income back to you.

  
  

4. Qualified Charitable Distributions

For clients age 70½ or older, qualified charitable distributions from an IRA allow you to transfer up to $108,000 per year directly to a qualified charity. This can satisfy your required minimum distribution (RMD) and lower your taxable income.

Pros:

• Reduces taxable income while supporting charitable causes.

• Satisfies RMDs without increasing your tax burden.

• Simple to set up with your IRA custodian.

• No need to itemize deductions to receive the tax benefit.

  
  

Cons:

• Must follow strict IRS rules to qualify (e.g., funds must go directly to the charity).

• Cannot be used to fund a donor-advised fund or private foundation.

  
  

5. Retained Life Estate Gifts

A retained life estate allows you to transfer ownership of your home, farm, or other real property to a charity now while retaining the right to live in or use the property for the rest of your life. After your death (or a specified term), the charity takes full possession.

Pros:

• You can continue living in your home while making a meaningful charitable gift.

• May provide an immediate income tax deduction based on the property’s value and your age.

• Removes the property from your taxable estate.

• Eliminates the need for probate or sale after death.

  
  

Cons:

• The gift is irrevocable once made.

• You remain responsible for property taxes, maintenance, and insurance during your lifetime.

• The charity must agree to accept the property under specific terms.

  
  

Ethical Wills and Charitable Legacy Planning

While not a legal instrument, an ethical will (or legacy letter) allows you to express the values and motivations behind your charitable choices. Some people pair this with a giving strategy so future generations understand their philanthropic vision.

Pros:

• Provides a personal, meaningful message to your heirs.

• Encourages multigenerational giving and shared values.

  
  

Cons:

• Not legally binding.

• Must be carefully coordinated with your legal documents to avoid confusion.

  
  

Choosing the Right Strategy

No single strategy fits every person or family. The best approach depends on:

• The type of assets you hold (cash, investments, real estate, retirement accounts).

• Whether you prefer to give during your lifetime or after your death.

• The amount of control you want to retain.

• Your tax situation and estate planning goals.

  
  

Every charitable giving strategy involves unique tax implications, especially for larger estates. It is essential to work with an experienced estate planning attorney — and also coordinate with a qualified accountant or financial advisor — to ensure your plan aligns with your personal goals, tax situation, and charitable vision.

Additional Resources

Charitable giving as part of an estate plan can offer meaningful tax and legacy benefits — but these strategies can be complex. To learn more about the options that may work best for your situation, the following resources provide helpful guidance:

• IRS Publications

  
  

  • Internal Revenue Service Publication 526: Explains the rules for charitable contributions, including deductions.

  • Internal Revenue Service Publication 561: Guidance on determining the value of donated property.

  • Internal Revenue Service Charitable Remainder Trusts Guide: Detailed information on charitable remainder trusts and their tax treatment.

    
    

Your Next Step

At Provident Law / Estate Planning LLC, we help clients implement charitable giving strategies that reflect their values and maximize the impact of their legacy. To schedule a consultation, call us at 205-396-5932.

About the Author

Colin McMichen is an experienced attorney and the founder of Provident Law / Estate Planning LLC, a Birmingham, Alabama-based firm. With a focus on estate planning and probate law, Colin is dedicated to helping individuals and families navigate complex legal matters with confidence.