If a Florida estate owner wants to leave a donation to charity, they should be sure to do so in the way that avoids the most taxes. Often, people use a will or trust to give to charity, but that can be a mistake.
As an example, a person might have a home, an after-tax savings account and an IRA that are each worth $1 million. The person may leave the home and IRA to the children. From the after-tax savings account, $900,000 might go to the children and $100,000 to charity.
However, IRA distributions are taxable. A better solution would be to donate $100,000 from the IRA to the charity and leave the remainder to the children. The charity will not be required to pay any tax, and the children will get more. Since IRAs are usually passed down using beneficiary designations, it is important to make sure that the beneficiary designation is consistent with the instructions in the will or trust. People who have a Roth 401(k) or a Roth IRA should leave those assets to loved ones and not to charity since their loved ones will not incur income tax on those types of accounts.
There are a number of other important elements to estate plans. Wills can be used to appoint a guardian for minor children. Powers of attorney and other documents can be used to appoint people to make financial and medical decisions for an estate owner who becomes incapacitated. These types of instructions save family members from having to go through lengthy and expensive court processes to have someone appointed for these roles. An estate owner should talk to the individuals they appoint for these roles and make sure they are willing to take on the responsibility.
