By Nathan Ealy
The Baptist Foundation of Alabama
Endowed scholarships help many college students pay for school. They also establish a lasting legacy for the donors who contribute the seed funds.
Setting up a memorial endowment fund to help students or to fuel Great Commission work for generations to come is easier than most people think and can be part of a Kingdom-minded estate plan. The Baptist Foundation of Alabama helps individuals plan for generous giving in the short and long term. For example, memorial endowments create a permanent fund to leave a dependable stream of income to provide an annual scholarship or contribute regularly to a favorite ministry or missions effort.
An added advantage of giving to ministry in your will is the possibility of minimizing taxes, but it’s important to approach the process thoughtfully and with proper legal and financial advice.
Here are some steps you can consider taking:
1. Consult with Professionals
Seek the guidance of experienced professionals, including an estate planning attorney and a financial advisor who specialize in charitable giving. They can help you navigate the legal and financial complexities to ensure your wishes are executed properly.
2. Set Up a Charitable Gift
Consider setting up a charitable gift in your will through a trust or a specific bequest. Charitable trusts, such as a Charitable Remainder Trust (CRT) or a Charitable Lead Trust (CLT), can provide benefits like income tax deductions, potential income for beneficiaries, and reduction of estate taxes. A specific bequest designates a certain amount or percentage of your assets to the ministry of your choice.
3. Choose Tax-Advantaged Accounts
If you have tax-advantaged accounts such as an IRA or a 401(k), you can designate a ministry as a beneficiary. This can have tax benefits, especially if you would have faced required minimum distributions and associated taxes.
4. Consider Qualified Charitable Distributions (QCDs)
If you’re over 70½ years old, you can make tax-free charitable donations directly from your IRA to a ministry through a QCD. This reduces your taxable income and supports the ministry simultaneously.
5. Create a Donor-Advised Fund (DAF)
Establishing a DAF allows you to make a charitable contribution to the fund and receive an immediate tax deduction. You can then recommend grants from the fund to the ministry over time. This approach provides flexibility and potential tax benefits.
6. Leverage the Annual Gift Exclusion
Consider gifting smaller amounts annually to the ministry during your lifetime. This can help reduce your estate while also utilizing the annual gift exclusion, which allows you to gift up to a certain amount per person per year without triggering gift taxes.
7. Research Tax Deduction Limits
Understand the limits on charitable deductions that apply to your specific situation. Tax laws may change, so staying informed about the latest regulations is essential.
8. Explore Testamentary Charitable Remainder Trusts
These trusts are established through your will and provide income to a beneficiary (like a family member) for a specified period, with the remainder going to the ministry. This can offer both income for loved ones and support for the ministry.
9. Review State Laws
Be aware of your state’s laws regarding estate taxes and charitable giving. Some states offer additional incentives or deductions for charitable donations.
10. Plan for Long-Term Impact
Consider how your giving will impact the ministry in the long term. Engage in conversations with the ministry to understand their needs and how your gift can best support their mission.
Remember that tax laws can be complex and subject to change, so it’s vital to work closely with professionals who can provide up-to-date advice tailored to your circumstances. While tax benefits can be a motivating factor, the primary focus should remain on your desire to support the ministry’s mission and make a positive impact.
EDITOR’S NOTE — Nathan Ealy serves as a ministry engagement officer with The Baptist Foundation of Alabama. TBFA helps Alabama Baptists and their churches maximize the money the Lord has entrusted to them so they can do more ministry. Alabama Baptists who need help with their estate plans, or churches considering a legacy ministry for their members, can get more information at tbfa.org.
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