Charitable Giving & Estate Planning in New Jersey

Charitable Giving That Also Reduces Tax

Charitable giving is often thought of as purely altruistic -- and it is. But when structured properly, charitable gifts can also produce significant tax benefits that amplify the impact of your generosity. A charitable remainder trust can defer immediate capital-gains recognition on the sale of highly appreciated stock inside the trust. A qualified charitable distribution from an IRA can satisfy your required minimum distribution without increasing your taxable income. A bequest to charity in your estate plan can reduce your NJ inheritance tax exposure: because qualified charitable gifts are classified as Class E (fully exempt), a dollar directed to charity is generally a dollar that does not face the 11-16% or 15-16% tax that would otherwise apply if that same dollar passed to a Class C or Class D beneficiary.

At Simon Law Group, we help New Jersey individuals and families integrate charitable objectives into their estate plans in ways that are tax-efficient, legally sound, and aligned with their values. Whether your charitable commitment is $5,000 or $5 million, there is a strategy that maximizes both your impact and your tax savings.

Charitable Giving Strategies

Charitable Remainder Trust (CRT)

A CRT is an irrevocable trust that works in two phases. During your lifetime (or for a fixed term of up to 20 years), the trust pays income to you -- either a fixed amount (charitable remainder annuity trust, or CRAT) or a percentage of the trust's value recalculated annually (charitable remainder unitrust, or CRUT). When the income period ends, the remaining trust assets pass to one or more charities you designate.

The tax benefits of a CRT are substantial:

• Immediate income tax deduction: You receive a deduction under IRC § 1701 in the year of contribution for the present value of the charitable remainder, subject to AGI limits.
• Capital-gains deferral: The trust is tax-exempt under IRC § 6642. If you contribute $500,000 of appreciated stock with a $50,000 cost basis, the trust can sell it and reinvest the full $500,000 without immediate trust-level capital-gains recognition; gain is generally recognized later through distributions.
• Income stream: The trust pays you income for life or a term of years, providing retirement income while fulfilling your charitable goals
• Estate tax reduction: The contributed assets are removed from your taxable estate
• NJ inheritance tax: The charitable remainder is Class E (fully exempt)

CRTs are particularly effective for individuals holding highly appreciated assets -- concentrated stock positions, investment real estate, or closely held business interests -- who want to diversify without triggering a massive capital gains tax bill.

Qualified Charitable Distributions (QCDs)

If you are age 70½ or older and have a traditional IRA, a QCD is one of the most powerful tax strategies available. You can direct IRA funds to a qualified charity up to the current IRS annual exclusion limit. The distribution:

• Counts toward your required minimum distribution (RMD) -- satisfying the requirement without adding to your taxable income
• Is excluded from your adjusted gross income (AGI) -- which can reduce your Medicare IRMAA surcharges, Social Security taxation, and net investment income tax exposure
• Works even if you take the standard deduction -- unlike regular charitable deductions, a QCD reduces income regardless of whether you itemize

The QCD is authorized by IRC § 408(d)(8)3, which is why the exclusion is a creature of statute rather than a deduction you claim on a schedule. That distinction matters in practice: because the distributed amount never enters adjusted gross income in the first place, the benefit reaches taxpayers who no longer itemize -- a large share of retirees under the current standard deduction -- and it works upstream of the AGI-based thresholds that drive Medicare surcharges and the taxation of Social Security. The mechanics are exacting, though: the funds must move directly from the IRA custodian to a qualifying charity, and donor-advised funds and most private foundations are excluded as recipients.

For retirees who are charitably inclined and already taking required minimum distributions, the QCD is usually the most tax-efficient way to give from retirement assets -- which is why it is often the first option we look at before reaching for a more complex vehicle.

Donor-Advised Funds (DAFs)

A donor-advised fund is the simplest and most flexible charitable giving vehicle. You make an irrevocable contribution to a sponsoring organization (Fidelity Charitable, Schwab Charitable, Vanguard Charitable, or a local community foundation), receive an immediate income tax deduction, and then recommend grants to specific charities over time -- on your schedule.

DAF advantages:

• Bunching strategy: In a high-income year, contribute several years' worth of charitable giving to a DAF. Take the large deduction this year, then distribute grants in future years. This is particularly valuable under the current high standard deduction.
• Appreciated asset contributions: Donate stock, mutual funds, or other appreciated assets to the DAF and generally avoid recognizing the gain that would apply if you sold first and donated cash.
• Investment growth: Assets in the DAF can be invested at the sponsoring public charity before being distributed to charities.
• Simplicity: No trust document, no annual tax return, no legal fees to establish -- just open an account, contribute, and grant
• Legacy giving: Name successor advisors (children or grandchildren) to continue directing grants after your death

Charitable Lead Trust (CLT)

A CLT is the mirror image of a CRT. The trust pays income to a charity for a specified period, and when the period ends, the remaining assets pass to your beneficiaries (typically children or grandchildren). A CLT is primarily a wealth transfer tool -- it allows you to pass assets to the next generation with reduced gift and estate tax exposure. The charitable payments during the trust term reduce the taxable value of the gift.

CLTs are most effective during periods of low interest rates (when the IRS-assumed rate of return is low, making the charitable interest appear more valuable) and for assets expected to appreciate significantly during the trust term.

Charitable Bequests

The simplest form of charitable giving in an estate plan is a bequest in your will or trust directing a specific amount, a specific asset, or a percentage of your estate to a charity. Charitable bequests are fully deductible for federal estate tax purposes under IRC § 20554 and are classified as Class E (fully exempt) under New Jersey's inheritance tax, N.J.S.A. 54:34-45. For individuals whose estate plans include beneficiaries who would face NJ inheritance tax (Class C siblings at 11-16%, Class D friends at 15-16%), a charitable bequest can reduce the overall tax burden significantly.

Private Foundations

For families with substantial charitable interests (often $1 million or more in planned giving), a private foundation provides the greatest control over grant-making, investment management, and charitable mission. That control comes with a real operating burden. A private foundation must file its own annual return, generally distribute at least 5% of its net investment assets each year under IRC § 49426 or face an excise tax, and avoid transactions between the foundation and its insiders under the self-dealing rules ofIRC § 49417. For most families, a donor-advised fund delivers much of the flexibility with none of that overhead -- which is why the foundation usually earns its keep only where the donor genuinely wants a named, perpetual institution and family members who will help run it. Where that is the goal, the foundation is the strongest legacy tool of the group.

Charitable Giving and New Jersey Taxes

New Jersey repealed its estate tax effective January 1, 2018, but it kept its inheritance tax -- a tax that turns not on the size of the estate but on who receives the money. That structure is what makes charitable planning distinctly valuable for New Jersey residents. Under N.J.S.A. 54:34-21, beneficiaries are sorted into classes, and the rate depends entirely on the class. Charities sit in the most favorable position, while siblings, in-laws, friends, and unmarried partners are taxed at meaningful rates with little or no exemption -- so redirecting a portion of an estate toward charity can shrink the tax that would otherwise fall on the rest. New Jersey's inheritance tax works as follows for charitable planning:

• Class E -- fully exempt: Bequests to qualified charitable organizations are classified as Class E and are exempt from NJ inheritance tax under N.J.S.A. 54:34-42, regardless of the amount of the gift
• Redirect from taxable classes: Instead of leaving $100,000 to a friend (Class D -- 15-16% tax = $15,000-$16,000 in tax), you could leave $50,000 to the friend and $50,000 to charity -- reducing the inheritance tax bill while supporting a cause you care about
• CRT remainder: The charitable remainder of a CRT is Class E exempt, and the income payments to you during your lifetime are taxed at ordinary income rates (potentially lower than the 15-16% inheritance tax rate on Class D gifts)

Choosing the Right Charitable Strategy

No single vehicle is best for everyone; the right one depends on what you are trying to accomplish and what you are funding it with. A donor sitting on a concentrated, low-basis stock position who also needs retirement income is pointed toward a different structure than a retiree who simply wants to give efficiently from an IRA, and both differ from a family that wants to involve children and grandchildren in giving for decades. The table below summarizes the most common matches; the prose above explains the reasoning behind each, and the right answer is frequently a combination -- a QCD for annual giving, a DAF for flexibility, and a bequest to capture the NJ Class E exemption at death.

Align Your Values with Your Estate Plan

Charitable giving is not only about tax savings -- it is about creating a legacy that reflects what you value. Our work begins with two questions: what causes you want to support, and what you would be funding the gift with. The answers point toward the vehicle. A concentrated, low-basis stock position and a need for income often point toward a charitable remainder trust; an IRA and required minimum distributions point toward qualified charitable distributions; a desire for flexibility without paperwork points toward a donor-advised fund; and the wish to involve the next generation points toward a foundation or a successor-advised DAF. We then coordinate the choice with the rest of your plan -- your will, your trusts, and your beneficiary designations -- so the charitable piece reinforces the whole rather than sitting beside it.

Call (800) 709-1131 to schedule a consultation, or get started online.

How we help: We compare the proposed asset's basis, the donor's income needs, deduction timing, chosen charities, family remainder, trustee or advisor roles, and the rest of the estate plan before selecting a CRT, QCD, DAF, CLT, bequest, or foundation. This is bespoke charitable planning, not a charitable-gift template. Outline the asset and charitable outcome you are considering.