Strategic giving during your lifetime covered four approaches that share one thing: the organization receives the money now, while you are here to see what it does.
This article is about the other timeline. Gifts that complete at the end of a term, or at the end of your life, and in some cases continue indefinitely afterward. Fundraisers call this planned giving. Most people have never had it explained to them clearly, which is why so many charitable intentions end up as a single sentence in a Will that may never take effect.
There is considerably more available than that.
PLANNED GIVING IN INDIANA: THE SHORT VERSION
- A charitable remainder trust lets you sell an appreciated asset without paying capital gains tax, take an income for life, and leave what remains to charity.
- Your retirement account is the most heavily taxed thing you can leave a child and the least taxed thing you can leave a charity.
- A paid-up life insurance policy you no longer need is often the easiest meaningful gift available to you.
- A fund at an Indiana community foundation keeps giving after you are gone. A paragraph in your Will gives once.
WHEN YOU CAN’T AFFORD TO SELL THE ASSET
Start with a problem that comes up constantly.
You own something that has grown enormously in value. A position in one company’s stock that quietly became a third of your portfolio. A rental property you have owned for thirty years and are tired of managing. Farm ground with no one left in the family to farm it.
You would like to diversify, or simplify, or step back. But selling means a capital gains bill large enough that you keep not doing it. So, the asset sits there, concentrated and illiquid, and the decision gets deferred another year.
A Charitable Remainder Trust (CRT) exists for precisely this.
You transfer the appreciated asset into an irrevocable trust. The trust sells it. Because the CRT is charitable, that sale produces no immediate capital gains tax. The trust reinvests the entire value, not what taxes would have left behind. The CRT then pays you, or you and your spouse, an income stream for life or for a fixed term of years. Whatever remains at the end goes to the charity you named.
You also receive a partial charitable deduction in the year you fund it, based on the projected value of what the charity will eventually receive.
Read that sequence again, because the leverage is easy to miss. You converted an asset you couldn’t afford to sell into a lifetime income stream calculated on the full pre-tax value, plus a deduction now, plus a gift later.
CRTs are not casual instruments. They are irrevocable. They require a trustee, ongoing administration, annual filings, and drafting that satisfies specific requirements or the arrangement fails. This is coordinated work between your attorney, your accountant, and your financial advisor. But when the facts line up, nothing else accomplishes what this does.
“THAT WAS MY CHILDREN’S INHERITANCE.”
This is the objection, and it’s a fair one. The asset went into the CRT and the remainder goes to charity. If that asset was a substantial share of your net worth, you have redirected what your family was counting on.
There is a well-established answer.
Use a portion of the income stream the trust pays you to fund a life insurance policy to leave for your children.
Now look at the whole arrangement. The trust sold the asset without capital gains tax. You received income for life, larger than it would have been after paying that tax. You took a deduction in the funding year. The charity receives the remainder. Your children receive a death benefit that is income-tax-free.
The family is made whole, and frequently better than whole. The charity is funded. The capital gains tax was never paid by anyone.
As someone once said, “Winning!”
Planners call this wealth replacement, and it is why life insurance and charitable remainder trusts belong in the same conversation.
LIFE INSURANCE AS A GIFT IN ITS OWN RIGHT
Set the CRT aside. Life insurance is a useful charitable tool on its own, in two different ways, and the tax treatment is not the same.
Naming a charity as beneficiary
The simplest version there is. You add the charity or charities on your beneficiary designation. The proceeds pass outside probate, arrive quickly, and are not income to the charity.
There is no charitable deduction during your lifetime for doing this. You still own the policy and can change your mind at any time, and the tax code treats it accordingly. That flexibility is the point for many people.
This deserves particular attention if you are carrying a policy purchased for a need that no longer exists. The mortgage protection on a house that’s paid off. The coverage bought when the children were small and now they’re in their forties with their own careers. That policy is still a real asset, and it may be the easiest meaningful gift you will ever make.
Transferring ownership of a paid-up policy
A different transaction with a different result. You give the policy itself to the charity. They become both owner and beneficiary. Because you have permanently parted with it, you receive a present charitable deduction, generally based on the policy’s value or your basis in it.
Then consider what the organization eventually receives. A policy funded with premiums that totaled a modest sum over the years may pay a death benefit several times that amount. That is enough to endow a named fund, establish a scholarship, or simply provide operating support for years.
Few gifts convert as much eventual value from as little actual cost.
SORT YOUR ASSETS BEFORE YOU DIVIDE THEM
This next point costs nothing to implement and is the highest-leverage move in this entire series.
Not all inherited assets carry the same tax burden.
If your children inherit your brokerage account, your house, or your farm ground, they generally receive what’s called a stepped-up basis. The tax cost resets to the value on your date of death. Decades of appreciation are simply never taxed. If they sell shortly afterward, there is often no taxable gain at all.
Life insurance proceeds pass to them income-tax-free as well.
If your children inherit your traditional IRA or 401(k), they get none of that. Every dollar they withdraw is ordinary income taxed at their rates at the point of withdrawal. And under current rules most non-spouse beneficiaries must empty the account within ten years, which usually means large withdrawals landing in their highest-earning years, at their worst tax rates. Worse, the child can take the full amount in a single year, taxed fully in that year.
Unfortunately, not planning for this or not discussing this with your child may result in them paying more in taxes in one year than you paid over the entire life of the investment. Decades of deferred taxes can add up to potentially 40% or more in taxes in one year.
A retirement account is probably the most heavily taxed asset you can leave a child, and the least taxed thing you can leave a charity. A charity pays no income tax as an IRA beneficiary. They receive the full balance.
The move follows directly. Direct retirement assets, all or a portion, to charity. Direct the bank accounts, life insurance, real estate, and brokerage assets to your family.
The same total leaves your estate. The charity receives the support you intended. Your family keeps substantially more, because they are receiving the assets that carry favorable treatment instead of the one that carries the worst.
This is a beneficiary designation form process. It requires no trust, no court, and no attorney to execute, though you should coordinate it with the rest of your plan, because beneficiary designations bypass your Will and your Trust entirely.
ENDOWMENTS: GIVING THAT DOESN’T STOP
For many people the real goal isn’t a single gift. It’s continuity. The support they have provided for decades continuing after they’re gone.
An endowment does that. The organization invests the principal and holds it permanently, then pays out a portion of the earnings each year. Structured properly, it can pay out in perpetuity.
Indiana is unusually well-equipped for this. Nearly every county has a community foundation. These organizations handle the investment, the administration, the compliance, and the annual distributions. Their entire purpose is holding money for the long term on behalf of donors who care about a particular place.
Consider a woman I’ll call Sally, a composite of several people I have worked with, though the arrangement is real.
Sally gave weekly to her church for most of her adult life, just like thousands of people. She wrote a check or put in cash. She’d write another check for the occasional special project. She wanted that to continue after she was gone. A paragraph in her Will wouldn’t have accomplished it. That produces one gift, once.
Working with her local foundation, she built a permanent fund over several years. It continues to send her church the monthly equivalent of those weekly envelopes, with additional income available for special projects as they arise. She funded it partly during her lifetime and completed it with a portion of her IRA at her death, not the entire account. Some still went to her family.
Everything else went to her family, too. Bank accounts, insurance, proceeds from her real estate, all passing without income tax, all of it carrying favorable treatment.
She gave the charity the asset the IRS would have taxed, and gave her family the assets it wouldn’t.
Her fund will support her church for as long as that church exists. If it someday doesn’t, the support redirects to others. That successor provision is a choice she made deliberately, and it is available to anyone who asks for it.
Sally is gone. Her support continues.
A BRIEF WORD ON RETAINED LIFE ESTATES
One more option worth knowing exists, though it fits a narrow set of circumstances.
You can give a home or farm to a charity while keeping the right to live there, or continue farming, for the rest of your life. The charity receives the property at your death. You receive a charitable deduction now, based on the value of what they will eventually get.
It suits someone with real property they intend to occupy for life, no heirs who need it, and a desire for a current deduction. The arrangement carries obligations during your lifetime around maintenance, insurance, and taxes, and it’s irrevocable. Worth a conversation if the facts fit.
PRIVATE FOUNDATIONS: WHEN YOU WANT CONTROL OVER THE VISION
Sometimes the goal isn’t supporting an organization. It’s making sure something specific continues to exist, and that people keep using it a particular way.
I have been working with a client who owns a specific-use property that he and his father built up over generations. It serves a youth-oriented mission and is available to the broader community as well. He has no spouse and no children.
He spent a long time looking for a buyer. What he discovered is that no one would guarantee anything. Buyers wouldn’t commit to preserving the youth access. Several wouldn’t commit to keeping the property in its current use at all. Every offer amounted to hoping the purchaser would honor a vision they had no obligation to honor.
We discussed a private foundation, a charitable entity he creates, funds, and designs. The foundation holds the property. He places additional assets in it to cover operations and maintenance. And he defines, in the governing documents, how people may use the property and who has access.
He kept looking for other answers for a while. Eventually he came back, because it was the only structure that could bind the outcome rather than hope for it.
That is one use. For families with substantial estates there is another: a private foundation is among the most effective ways to direct wealth toward a community need instead of paying it in federal estate tax. It is a genuine choice between funding something you designed and writing a check to the government.
Foundations require enough funding to sustain operations and still have meaningful money to give, and they carry real ongoing obligations. They also don’t have to last forever. Perpetuity commits your successors to assumptions none of us can test, and there is usually plenty worth doing now.
Thankfully, for Northwest Indiana, there are many family foundations that significantly impact community needs every year. Two of the most well known are The Dean and Barbara White Foundation and The John Anderson Foundation. Their grants have touched tens of thousands of lives in our communities.
There are many others who also impact lives. It is not something for everyone, but it can be a great way to leave a legacy and impact lives for decades to come.
THE PARAGRAPH IN YOUR WILL
Most people who intend to leave something to their church or their college do it exactly one way. A sentence in the Last Will.
That approach has two problems.
Your general estate assets fund it, which is the post-tax equivalent of writing a check, just later. It captures none of the efficiency described above.
And a will only operates through probate. If your estate avoids probate, that paragraph may never take effect at all. I’ve written about that in more detail in The Will is not Enough.
A beneficiary designation, a trust provision, or a fund at a community foundation accomplishes the same intention with more certainty, better tax treatment, and no court file number attached.
THE FOURTH PART OF THE CONVERSATION
Complete estate planning covers four things. Taking care of the people you love. Reducing what the government takes. Avoiding the delay, expense, and public record of probate.
And the part of your life that was never entirely about you.
For a great many people, that fourth piece is where the meaning is. It rarely comes up on its own, because most planning conversations never make room for it. If yours didn’t, that’s worth noticing.
If you are starting from the beginning, how charitable giving in Indiana works covers the whole picture before any of these tools.
Every plan is specific to your family, your assets, your tax situation, and your wishes. Nothing here is advice about your circumstances. These strategies work best when your attorney, your accountant, and your financial advisor are working from the same set of facts.
CCSK Law works with families across Northwest and Central Indiana on estate planning, elder law, and charitable planning. Charitable intent belongs in the planning conversation alongside everything else you are deciding. If you would like to talk through what your current plan accomplishes and what it could, we are glad to have that conversation. Call us: (219) 230-3600. No charge for that first conversation.
QUESTIONS PEOPLE ASK ABOUT PLANNED GIVING IN INDIANA
It depends on what else is in your estate, but the tax treatment is lopsided. A child who inherits a traditional IRA pays ordinary income tax on every dollar withdrawn, and most non-spouse beneficiaries have ten years to empty the account. A charity named as beneficiary pays no income tax at all and receives the full balance. Plenty of families direct retirement assets to charity and leave the house and the brokerage account to their children instead.
You move an appreciated asset into an irrevocable trust. The trust sells it without paying capital gains tax, so the full value gets reinvested rather than whatever would have survived the tax bill. It then pays you an income stream for life or for a set term. Whatever remains at the end goes to the charity you named, and you take a partial deduction in the year you fund it.
Yes, and it is the simplest charitable gift there is. You add the organization to your beneficiary designation, the proceeds skip probate, and the charity receives them without income tax. There is no lifetime deduction for doing it, because you still own the policy and can change your mind whenever you like.
You do, if you transfer ownership of the policy rather than only naming the charity as beneficiary. The organization becomes both owner and beneficiary. Because you have permanently parted with the asset, the deduction generally follows the policy’s value or your basis in it. A paid-up policy you no longer need is often the easiest meaningful gift available to you.
You contribute to a fund the foundation invests and holds permanently, and the foundation pays out a portion of the earnings each year. Nearly every Indiana county has a community foundation, and they handle the investing and the administration, so you are not managing anything. Structured properly the fund can support your church or your cause indefinitely, and you can name where the support redirects if that organization ever closes.
This article is general information, not legal advice. Reading it does not create an attorney-client relationship, and every situation has details that change the answer. For advice about your own situation, talk with a licensed Indiana attorney.
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