There are many ways in which you can include the Humane Society of Central Illinois (HSCI) as a part of your estate plan, and when done properly the inclusion of a charitable beneficiary such as the HSCI as a part of your estate plan can not only allow for your generosity to benefit animals in need, but it can provide tax benefits that may benefit the non-charitable beneficiaries of your estate plan as well. Here are some of the ways in which you can make the HSCI a part of your estate plan.
The most straightforward way to include the HSCI as a part of your estate plan is to name them as a beneficiary in your estate planning document. You can provide for a specific monetary bequest, a gift of a percentage of the remainder of your estate, or even list the HSCI as a contingent beneficiary in the event that one or more named beneficiaries are unable to receive their bequests. While including the HSCI in your Will or Trust will not reduce your personal income taxes, it can reduce or eliminate any potential estate taxes if your estate is over the Federal or State of Illinois exemption amount.
If you are over the age of 70½ and you have an IRA account (including an inherited IRA), you can use a Qualified Charitable Distribution (QCD) to reduce your income tax burden while simultaneously benefiting the HSCI. Those over 70½ must withdraw an annual amount from their IRAs known as a Required Minimum Distribution (RMD). If you do not take the RMD amount from your IRA, you can face a significant penalty of 50% of the amount of the RMD, and if you do take the necessary RMD it will count as income for that tax year and can increase your income tax burden. However, there is a way to gift your RMD to a charitable entity such as the HSCI through a QCD and incur no additional tax or penalties. By having your RMD transferred directly to a 501(c)(3) entity such as the HSCI, you avoid any penalty or additional income tax on the RMD amount. You are also able to make a more significant gift to the HSCI, because the tax free nature of the gift means that the full amount of the RMD is available for the shelter. While the QCD gift is not deductible on your income taxes (because the gift was made with pre-tax money), it can still minimize your personal income tax by reducing your annual income if you are not in need of the RMD funds at that time.
Another way to support the HSCI is to name the shelter as the beneficiary of your 401K or IRA. Because the HSCI is a 501(c)(3) charity, it can receive 100% of the account's value after liquidation, unlike an individual who would have to pay tax on any distributions they received. You can then leave your non-charitable beneficiaries your other assets through your Will or Trust. As most non-retirement account assets will receive a step up in basis, your non-charitable beneficiaries will not have the same income tax burden they would if they received all or some of your retirement account.
A Charitable Remainder Trust (CRT) is an irrevocable trust which you fund with a portion of your assets during your life, usually something such as stocks of real estate which will appreciate in value over time. By placing the property in an irrevocable trust, you are removing the property from your estate for estate tax purposes. You will also receive a charitable income tax deduction which you can use on your personal income taxes. During the remainder of your life, or for a set number of years, a predetermined portion of the amount which you have transferred to the CRT is paid back to you. At the end of the term of the CRT, the remaining amount passes to the HSCI. A CRT can be useful if you are at risk of estate tax and want to provide for the HSCI while still receiving income off the asset during your life.
These are just some of the more common ways in which you can include the HSCI as a part of your estate plan. By including the HSCI in your estate plan, you are not only ensuring that the shelter can continue to provide for the welfare of animals in need, but you are also extending your generosity to a cause which you care about while establishing a meaningful legacy that your family and others can admire and be inspired to carry on themselves.
While the HSCI is happy to provide assistance with respect to the proper language to use when naming the shelter in your estate plan or retirement account, it is also important that you consult an attorney or a tax professional when creating or amending your estate plan to ensure that your estate planning documents meet all the necessary requirements.