How to Minimize Estate Taxes Through Charitable Giving

I often speak with clients who want to leave something meaningful behind for their families and their communities. Many of them also want to reduce the impact of estate taxes on what they pass down. 

In my Houston estate planning practice, charitable giving stands out as one of the most powerful tools for accomplishing both goals. When done properly under Texas law, charitable contributions can significantly reduce estate tax exposure while also supporting causes that matter to you.

Estate planning isn't just about legal documents—it's about long-term thinking. Charitable giving allows you to make a lasting difference, not only for your heirs but for the broader life you leave behind. 

But these gifts have to be structured properly if they’re going to offer any real tax benefit. That’s where I help clients build a strategy that matches their values with smart financial and legal choices.

The Connection Between Estate Taxes and Charitable Gifts

One of the main reasons charitable giving is so effective in estate planning is that gifts to qualified charities are exempt from federal estate taxes. When someone leaves a portion of their estate to a 501(c)(3) organization, that amount is deducted from the total value of their taxable estate. 

This can lower the estate’s overall value to a level below the federal exemption threshold or at least reduce the taxable portion. While Texas doesn’t impose its own estate tax, federal rules still apply, and they affect many of the families I work with.

Even when clients aren’t immediately concerned about hitting the federal exemption limit, charitable giving can be a way to balance priorities. Some people want to avoid burdening their beneficiaries with tax obligations. 

Others are motivated by a desire to support religious institutions, universities, hospitals, or community programs. Through estate planning, I help clients direct their assets in a way that supports those goals while taking advantage of favorable tax treatment under both federal and Texas law.

Structuring Gifts Through a Will or Trust

One of the most straightforward ways to make a charitable gift is through a provision in a last will and testament. In my estate planning work, I often draft wills that include specific bequests to charitable organizations. 

These can be fixed dollar amounts, percentages of the estate, or residual gifts that come from what’s left after other distributions are made. The key is to describe the recipient clearly and confirm that the organization qualifies as a tax-exempt charity.

For clients who prefer more privacy or control over how and when a gift is distributed, a revocable or irrevocable trust may offer advantages. Trusts allow charitable gifts to be made outside of probate, which means faster delivery and less court involvement. 

With the right structure, they can also provide ongoing support through annual distributions rather than a one-time lump sum. I use trusts regularly in estate planning when clients want to blend family support with charitable goals.

Charitable Remainder Trusts and Income Benefits

A more advanced tool I often recommend is the charitable remainder trust (CRT). This arrangement allows a person to transfer assets into a trust, receive income from those assets during their lifetime, and then donate the remainder to a designated charity after death. 

For clients in Texas who are concerned about both income during retirement and estate taxes later, this structure can be highly beneficial.

When structured properly, a CRT provides an immediate charitable income tax deduction based on the present value of the future gift. It also removes the asset from the taxable estate, lowering estate tax exposure. 

I often explain to clients that this type of estate planning tool not only supports a good cause but also offers income and tax benefits during life. The IRS recognizes CRTs and other charitable split-interest trusts, provided they meet certain standards, which I always verify in my planning process.

Family Foundations and Donor-Advised Funds

Some clients prefer more involvement in how their charitable gifts are used. For those individuals, setting up a private foundation or contributing to a donor-advised fund (DAF) can be an effective part of estate planning. 

A foundation gives the family control over which charities receive distributions, allowing the client’s philanthropic vision to continue through future generations. A DAF offers a similar benefit with less administrative burden, and both options can be funded during life or at death.

In either case, the contribution reduces the size of the taxable estate. These tools also provide opportunities to teach younger family members about philanthropy and stewardship. 

I guide clients through the process of creating these entities, choosing trustees or advisors, and drafting the necessary documents to satisfy Texas and federal legal standards. Estate planning isn’t just about asset protection—it’s about building a legacy that reflects a client’s values and priorities.

Appreciated Assets and Tax Efficiency

Charitable giving can also be structured in ways that maximize tax efficiency. One method I often recommend in estate planning involves donating appreciated assets such as real estate or stocks.

When a client contributes these assets to a qualified charity, neither they nor their estate is required to pay capital gains tax on the appreciation. The full fair market value of the asset can often be deducted from the estate’s value for tax purposes.

In Texas, where land and real estate hold significant value, this strategy can make a real difference. I’ve helped clients donate property to conservation organizations, churches, and educational institutions as part of their estate plans. 

These gifts not only provide tax benefits but often help preserve natural areas or support community development. The key is making sure the donation meets legal standards and that the receiving organization is ready to accept the asset.

Lifetime Gifts vs. Testamentary Gifts

Another decision I discuss with clients is whether to make charitable gifts during life or after death. Lifetime gifts can provide immediate income tax benefits, and they allow the donor to witness the impact of their generosity. Some of the advantages of lifetime giving include:

• Immediate income tax deductions in many cases

• The ability to see your donation make a difference

• A reduction in the size of your estate, which may help avoid estate tax

For some clients, that experience is deeply meaningful. Others prefer to retain control over their assets during life and make gifts through their will or trust. This approach has its own benefits, such as:

• Full control of assets during your lifetime

• The ability to include charitable gifts in your estate plan

• A reduction in the taxable estate, even without income tax deductions

Under Texas law, both approaches are valid, but the tax consequences vary. Lifetime gifts can reduce the size of the eventual estate, possibly avoiding estate tax altogether. Testamentary gifts reduce the taxable estate but don’t offer any income tax deduction.

I help clients weigh these considerations and choose a method that fits their financial situation and personal goals. Every estate planning conversation is different, but charitable giving remains a consistent way to reduce tax exposure while doing good.

Coordinating With Retirement Accounts

Retirement accounts such as IRAs and 401(k)s can also be used in charitable giving as part of an estate plan. When these accounts are passed to heirs, they may be subject to both income and estate taxes.

But if the account is left to a qualified charity, the value is excluded from the taxable estate and the charity receives it tax-free. I often recommend this option for clients who want to support a cause and minimize the tax burden on their family.

In some cases, it’s also possible to designate a charitable remainder trust as the beneficiary of a retirement account. This allows income to be paid to a surviving spouse or child, with the remainder going to charity. 

These arrangements require careful drafting and must follow both tax rules and estate planning principles. I always work closely with clients to confirm that beneficiary designations align with their overall plan and comply with applicable laws.

Staying Current With Legal Changes

Tax laws can shift over time, and estate planning strategies that work today may need adjustment in the future. That’s why I encourage clients to review their estate plans regularly, especially when charitable giving is involved. 

I stay up to date on changes to federal estate tax thresholds, IRS regulations, and Texas property laws so I can offer advice that reflects the current legal process.

For clients who are serious about minimizing taxes and maximizing charitable impact, estate planning isn’t a one-time event. It’s a conversation that evolves over time as circumstances change. 

Whether it’s a new grandchild, a rise in asset values, or a shift in charitable interests, I work with clients to adjust their plans and keep everything aligned with their goals.

Get Help Today

As an experienced estate attorney at the Law Office of Keith D. Peterson, CPA, J.D., I’ve helped many individuals and families use charitable giving to reduce estate taxes and support the causes they care about. I’m proud to serve individuals throughout Northwest Houston. Reach out today to request your initial consultation.