Whatever your age, income, or family status, you have probably heard of and considered estate planning. An estate plan ensures that the money you work so hard to earn protects and benefits your loved ones. However, another planning option you may not have considered is charitable estate planning. Charitable estate planning is a rewarding way to benefit a worthwhile charity or organization, while reaping tax benefits for you and your family both now and later.
It is not necessary to have a large estate or income to benefit from charitable estate planning and it is especially helpful for individuals with no children who want to make a positive impact on the world with the products of their life’s work. Charitable giving can make a positive impact on a university, a religious organization, a city, or even the world.
Some Concepts and Tools of Charitable Estate Planning
Charitable planning has a long history in the United States. “In America, Andrew Carnegie’s 1889 Gospel of Wealth called upon the millionaires of the age to distribute their wealth for public good; the ground-breaking foundations that he and his fellow titans of industry established had far reaching effects on education, culture, science, and public health worldwide.” National Philanthropic Trust - A History of Philanthropy.
In the United States, many charitable contributions are tax deductible. This has led to a large body of law and regulation governing charitable giving. Some tools for charitable giving through estate planning include outright gifts, trusts, family limited partnerships, donor-advised funds, and private foundations. These tools have different tax implications and benefits for the donor and the beneficiary, along with many traps for the unwary.
Many people approaching estate planning want to find a way to make the world a better place. Whether giving to medical research, a college football program, a religious organization, or an arts program, donors want to see their dollars used for projects they support. Charitable estate planning tools can meet that goal.
The Charitable Remainder Trust: Support for You Now and the Charity Later
A simple way to explain a trust is to change “trust” to “trunk,” like an antique travel trunk. Assets are deposited in the trust (or trunk), and, in the case of an irrevocable trust, the trunk is locked so that the trust donor can no longer reach and spend the assets. A trustee holds the key to the trunk and can only open it and spend or use the money in ways directed by the trust instrument.
A charitable remainder trust allows the trust donor to deposit assets into an irrevocable trust but continue to receive distributions from the trust for living expenses until the donor’s death. At the time of death, the remainder of the trust is donated to a charity or charities specified by the trust donor. Such trusts may be beneficial for income taxes and estate taxes, while ensuring living expenses are met and charitable goals are achieved. If a highly appreciated asset is put into the trust, the donor may avoid paying capital gains taxes.
Charitable Estate Planning through the Charitable Lead Trust
If you won’t need the income from the trust but would like to benefit a charity and children or grandchildren upon your death, the charitable lead trust allows the trust donor to deposit assets and use the income from the trust to benefit a chosen charity or charities. At the donor’s death, the trust assets pass to the donor’s children, grandchildren, or other designated beneficiaries.
Charities are as widely varied as the individuals who contribute. Whether your object is research into a particular disease, protecting dogs and cats, protecting the rhinoceros, or ensuring that the church you attend has new pew cushions, there is a charity that speaks to your interest.
However, not all charities are alike in their use of donations. Before deciding to benefit a charity by your hard-earned and painstakingly accumulated assets, do a little research. Just because you have seen heart-tugging advertising from a charity does not mean that the charity spends the bulk of its money on charitable objects; rather, advertising, executive salaries and travel, luxurious New York offices, and other less noble expenses may be crowding the charity’s budget. Some websites to check for ratings on your charity of choice or to find out how the charity spends donations are the Better Business Bureau's give.org list, or Charity Watch.
Avoid Pitfalls with Professional Charitable Estate Planning Services
In the financial world, there are many companies and businesses ready to sell you the next greatest thing with a sizeable commission for themselves. Meanwhile, the Internal Revenue Service (IRS) is ready to pounce on any questionable charity and any estate planning that does not meet the IRS’s strict criteria for charitable tax benefits. Charities themselves may offer helpful solutions, such as offering to perform your charitable estate planning for you at no cost, but what if you later want to change your charity because you don’t like the direction it is going in, or if the IRS changes the charity’s status? Avoid pitfalls, misery, and the IRS by consulting an experienced professional in charitable estate planning services.
While federal estate tax law is uniform, the rules for wills, trusts, estates, and probate are different in every state. Only a West Virginia attorney should advise you about charitable giving in your WV estate plan.
If charitable estate planning sounds like a win-win solution for you—benefitting you, your loved ones, and a favorite charity—consult Jenkins Fenstermaker, PLLC charitable estate planning attorney, Anna M. Price. Anna can be reached at (304) 523-2100, toll-free at (866) 617-4736, or through the online contact form. Discover your options for charitable giving today.