Charitable Giving in a Georgia Estate Plan: Leaving a Legacy Without Shortchanging Your Family

Somebody called our office recently and said something that has stayed with me. She said, “I want to leave something to my church, but I do not want my daughter to think I chose them over her.”

That is the real question underneath charitable giving. Not the tax treatment. Not the mechanics. The question is how you support something you have believed in your whole life without your family feeling like they came second.

The good news is that this is one of the few areas of planning where doing it well genuinely helps both sides. Done thoughtfully, charitable giving can increase what your family receives, not reduce it. Done casually, in a line added to a will without advice, it can cause exactly the hurt she was worried about.

Here is how it actually works in Georgia.

Start With the Question Nobody Asks

Before we talk about vehicles, I want you to answer something: what are you actually trying to honor?

Families give for very different reasons. Some want to support the specific congregation that showed up when a spouse was dying. Some want to fund the scholarship they wish they had received. Some simply want their children to see that generosity was part of who they were.

The reason matters, because it determines the structure. A single gift to a church you have attended for forty years is a different problem from an ongoing commitment you want your grandchildren to be part of administering.

The Simplest Route, and Why It Is Often Enough

For most families, a specific bequest in the will or trust is the right answer. A stated dollar amount, or a stated percentage of the residue, to a named organization.

It is clean, it costs almost nothing to include, and it is easy to change if your relationship with the organization changes.

Two practical points. Name the organization precisely, including its legal name and, ideally, its tax identification number, because charities merge, rename and dissolve. And consider a percentage rather than a fixed sum. A $50,000 gift written twenty years ago may have been ten percent of an estate then and eighty percent of it now.

Beneficiary Designations, the Most Overlooked Tool

Here is the piece that surprises people.

If you intend to leave money to charity and you hold a traditional IRA, 401(k), or other pre-tax retirement account, that account may be one of the most tax-efficient assets to leave to charity.

When an adult child inherits a traditional IRA or pre-tax 401(k), the income-tax liability generally comes with it. Under current federal law, most adult children must completely withdraw an inherited retirement account within ten years. Those withdrawals are generally taxed as ordinary income to the extent the account contains pre-tax dollars and earnings. Depending on the beneficiary’s circumstances, those distributions may occur during some of the beneficiary’s highest-earning years.

A qualified tax-exempt charity, by comparison, generally does not pay federal income tax when it receives those retirement-account assets.

So a $100,000 traditional IRA may ultimately be worth substantially less than $100,000 after income taxes to your daughter, while substantially the entire $100,000 can benefit the charitable organization. Leaving the retirement account to charity and other assets to your children can increase what the family actually keeps.

That creates an important estate-planning opportunity. If you intend to benefit both family and charity, you may be able to leave the retirement account to charity while leaving your children assets that receive more favorable tax treatment at death. For example, many appreciated investments receive a new income-tax basis equal to their fair market value at death. The income-tax liability built into a traditional IRA generally does not disappear at death.

There is one more important point: retirement accounts generally pass according to the beneficiary designation on file with the IRA custodian or retirement plan, not according to your will. The beneficiary designation should therefore be reviewed as carefully as the estate-planning documents themselves. A beautifully drafted will cannot fix an outdated retirement-account beneficiary designation. Special rules, including spousal-consent requirements, may also apply to certain employer-sponsored retirement plans.

Charitable Remainder Trusts

For families with a larger estate, or with a highly appreciated asset such as land or stock bought decades ago, a charitable remainder trust deserves a look.

In outline: you transfer the asset into the trust, the trust can sell it without immediate capital gains tax to you, you receive an income stream for life or for a term of years, and whatever remains at the end passes to the charity.

It can produce a current income tax deduction, convert a non-income-producing asset into a stream of income, and support the cause, all at once.

It is not for everybody. It involves real cost to establish, it is irrevocable, and it only makes sense above a certain asset level. But where it fits, it fits very well, and the appreciated-asset case is the classic one.

The Traps

The first trap is naming a charity as beneficiary of an account your spouse needs. Retirement accounts often carry spousal rights. Do not redirect an account your spouse is counting on without advice.

The second trap is forgetting the Medicaid look back. A charitable gift is still a transfer. Georgia has a five year look back, and a generous gift made two years before a nursing home admission can create a penalty – which will be a period of months that you must private pay for the care with no assistance from the Medicaid program. If long-term care is anywhere on the horizon, the timing of a gift matters as much as the amount.

The third trap is assuming the organization can accept it. Not every charity can accept real estate, closely held business interests, or a complicated asset. Ask before you name it.

The fourth trap s is telling nobody. This is the one that causes the family hurt. A charitable gift discovered upon reviewing your testamentary document after death can bes a shock. A charitable gift explained at a Sunday dinner, in your own words, is a legacy. If you take one thing from this article, take that one.

What This Looks Like Done Well

The families who handle this best tend to do three things. They decide the reason first and the vehicle second. Then third, they tell their children while they are alive and able to explain it. And they review the beneficiary designations, because that is where the plan usually breaks.

None of that requires a large estate. It requires an afternoon and a willingness to say out loud what mattered to you.

This Is Educational, Not Legal Advice

This is being presented for educational purposes only and nothing here should be treated as legal advice. What applies to you is very fact specific to your circumstances. I am licensed in Georgia and Michigan only, and this area of law changes frequently, particularly the federal tax treatment described here.

Your Next Step

If you are weighing a gift to a cause you care about and you want it done in a way your family will understand, schedule a complimentary 15 minute Strategy Session by calling 404-549-5001.

On Thursday 10 September at 1pm we are running a webinar on exactly this, Creating a Legacy of Giving: How to Incorporate Charitable Strategies into Your Estate Plan. It is free, and it is a good place to start if you would rather listen before you talk.

You can also read more on our Estate Planning page.

The three things to carry with you: decide what you are honoring before you decide the vehicle; if you are giving anyway, the retirement account is usually the smartest asset to give; and tell your children yourself, in your own words, while you still can.

Generosity and providing for your family are not competing goals. With a little planning they are the same act.

why this disclosure in a blog? while i do give the disclosure at live events, I have never included it in my blogs. If we decide to include then it would make more sense to be towards the beginning

   

Looking to find an experienced estate lawyer in the Georgia area who is skilled in asset protection and estate plan preparation? Shannon Pawley is an attorney in Georgia with expertise in estate planning and asset protection. Shannon can provide assistance with creating an estate plan to include making a will and how to establish a trust properly. If you have questions about asset protection or questions about making an estate plan, reach out to Shannon and she will be glad to help answer all the estate planning questions you might have!