Estate Planning: Why Philanthropy Matters

Chattanooga is home to a whopping 3,500 nonprofits. These organizations provide a range of essential functions, from education, arts, and culture to food pantries and other basic needs support. Unfortunately, charities in Chattanooga are following a national trend of declining contributions.

You can make a difference. Including charitable giving in your estate planning lets you make a lasting impact on organizations you value. The benefits of charitable giving range from supporting the mission of local nonprofits to lowering your tax bill.

Learn more about the importance of philanthropy for your estate planning and the Chattanooga community.

Take Advantage of Tax Benefits

Charitable contributions in Chattanooga can give you several types of tax benefits. You may be able to lower the amount of your income, capital gains, and estate taxes. Including all three types of deductions in your estate planning helps reduce your tax liability before and after your estate passes on to your heirs.

Reduce Your Taxable Income

Donations to eligible charities are tax-deductible. If your itemized deductions are more than the standard deduction, these donations can lower your taxable income.

You can deduct up to 60% of your adjusted gross income if you make a monetary charitable donation. You can deduct 30% of your adjusted gross income if you give appreciated assets like stocks. You must have held the assets for more than a year before donating them.

If your donations are larger than those limits, you may be able to carry the remaining amount forward for up to five tax years. If the donation occurs upon your death, the IRS doesn't limit the amount of your charitable deduction.

Avoid Capital Gains Tax

Donating assets like stocks or real estate to an eligible charity can help you avoid capital gains tax. You typically pay capital gains tax when you sell these types of assets.

Donating the assets can create more tax savings for you. You can deduct the fair full-market value from your income tax as well as avoid the capital gains tax.

Lower Your Estate Tax Liability

Charitable contributions are typically exempt from the estate tax. Gifts to charities reduce your overall estate tax, which helps preserve more of your estate for your heirs.

The estate tax is a tax on the property and assets you transfer to others when you die. Tennessee doesn't have a state estate tax, so you only need to be concerned with the federal one.

The federal estate tax threshold for 2025 is $13.99 million for individuals and $27.98 million for couples. If your estate is worth more than those limits, you'll pay taxes on the amount above the threshold. The tax rates for 2025 range from 18% to 40% depending on how much of your estate is above the threshold.

Philanthropy and Estate Planning Strategies

You're part of the community in Chattanooga. Leaving a legacy of philanthropy could be easier than you think.

You can make charitable giving part of your estate planning in several ways. Your financial advisor can help you design the best strategy for your situation.

Direct Bequests

A direct bequest from your will is one of the most straightforward ways to leave a legacy of philanthropy. You can specify a percentage of your estate or specific assets you want to leave to local charitable organizations.

You can make a direct gift of cash, other financial assets, or tangible assets like real estate or antiques.

Life Insurance

You can include a life insurance policy in your estate planning in two main ways. If you have a permanent life insurance policy, you may be able to transfer ownership and beneficiary interest to a charity. The charity can surrender the policy for its cash value.

You can claim an income tax deduction when you transfer ownership of the policy. The value of the policy may be removed from the value of your estate, which can lower your estate tax.

The second option is to name the charity as a full or partial beneficiary of your life insurance policy. This option is available with permanent or term life policies. You can't claim a tax deduction during your lifetime, but your estate will get a tax deduction when the beneficiary proceeds are distributed.

Retirement Plan Assets

You can donate to a qualifying charity directly from your individual retirement account (IRA) if you are age 70 1/2 or older. Neither you nor the eligible charity need to pay income tax on these qualified charitable distributions (QCDs). The amount you can donate tax-free will be adjusted yearly to account for inflation starting in 2024.

QCDs can count toward your required minimum distribution if you're age 73 or older.

A QCD isn't included in your adjusted gross income. This can help keep Medicare premiums lower and prevent the phaseout of some tax credits.

Donor-Advised Funds

With a donor-advised fund (DAF), you make an initial donation to a charity and distribute the funds over time. The public charity manages the fund.

You can take an immediate tax deduction on the amount you contribute, and you can contribute multiple times. You can make recommendations on how the money is used.

Charities usually use a professional investment firm to manage DAF assets. Your contributions may grow more over time. However, the administrative costs can make a DAF less efficient than giving directly to local charitable organizations.

Charitable Gift Annuity

A charitable gift annuity gives you income during retirement and also benefits a charitable organization. You transfer assets to a charity and receive payouts for the rest of your life.

The charity keeps the funds that remain after you pass. This must be at least 10% of the original value of the assets.

You can deduct part of the initial gift from your income taxes.

Get the Benefits of Charitable Giving

These estate planning tips in Chattanooga can benefit your tax situation in several ways. However, the benefits of charitable giving go far beyond taxes. You can make a lasting impact on charitable organizations in your community and beyond.

Philanthropy and estate planning are key elements of financial planning for older adults. Planning for senior living is another important consideration. If you have questions about independent living, assisted living, or memory care, reach out to Signal Mountain Senior Living in Chattanooga. A member of our caring and knowledgeable team would be happy to discuss the options that will best meet your needs.