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.
When considering giving to ministry in your estate plan while also aiming to minimize taxes, it is important to approach the process prayerfully, thoughtfully and with the advice of various professionals.
Here are some steps you should consider taking:
1. Consult with professionals
Seek the guidance of experienced professionals, including an estate planning attorney, an accountant, 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 or during your life 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 pre-tax IRAs, 403(b)s, or 401(k)s, you can designate a ministry as a beneficiary. This can have tax benefits, especially if these accounts are passed to any beneficiary other than a spouse, when at such time the next beneficiary might realize only 60-65% of the value of the account due to income taxes.
4. Consider qualified charitable distributions (QCDs)
If you’re over 72 years old, you can use any Required Minimum Distribution (RMDs) you receive to make tax-free charitable donations directly from those accounts to any charitable organization. This reduces your taxable income and supports the ministry you love.
5. Create a donor-advised fund (DAF)
Establishing a DAF allows you to make a charitable contribution to the fund you created 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 or during your lifetime 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 specific state law 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 is 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 ministries and missions you love and make a positive impact for the Kingdom.
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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