Giving to a favorite charity is an activity that brings great joy and enables your money to work for the ideals in which you believe. Gifts during life enable you to see your gift at work. Gifts through a Last Will or other testamentary document (such as a Revocable Living Trust) enable you to give larger amounts without the worry of reducing the amount of money with which you have to live.
There are multiple ways to benefit your favorite charity or charities at your death. It is important to keep in mind that many charities have a national headquarters and multiple local branches. If you want you gift to go to your local chapter, the gift must specify the local chapter, instead of just the name of the charity. Otherwise, your local chapter may receive no direct benefit from your gift.
The typical ways individuals make gifts to charities in their Will (or Revocable Living Trust) include the following:
A Bequest of a Specific Amount of Money to the Charity: This type of bequest is usually as simple as “I leave $10,000 to Habitat for Humanity of the St. Vrain Valley.” However, with this type of specific bequest, it is possible that (for a number of reasons) your estate will not have enough money to satisfy all of your gifts. Therefore, it is helpful to include language that allows your Personal Representative (the person you nominate to administer your estate after your death) to reduce all of your gifts proportionately if your estate does not have enough money to satisfy them in full. This ensures that all of the charities and individuals receiving gifts under your will receive something.
A Bequest of a Percentage of the Estate to Charity: This type of bequest allows you to designate a charity as the recipient of a percentage of your estate and may be made in your Will in conjunction with or after providing for family members or others. By providing a percentage of your estate, there is no worry about the estate not having enough assets to satisfy the gift.
The Bequest of the Entire Remainder Estate to Charity: Of course, you are able to leave your entire remainder estate to a charity. The charity will receive all of the assets in your estate after specific bequests to family and others are satisfied.
The Bequest of a Valuable Object to the Charity: All gifts are appreciated by charities. One issue you should take into account is whether the charity will be able to convert the gifted asset into cash as easily and efficiently as you could. If the charity will have to spend considerable amounts of time and resources determining how to sell the item, the charity may be willing to settle with only a fraction of its value at the time of sale. Items with no ready marketplace other than by sale at auction are items that charities may be willing to sell below market value. Alternatively, items that have a ready marketplace, such as publicly traded securities, make great gifts to charity.
The Bequest of a Remainder Interest in Property: If you own property at your death that is being utilized but which you would like to give to charity (property owned by you but being used by a loved one or a family company, etc.), you may give the person or organization currently using the property a time-based interest in the property (for the life of the current tenant, for instance) and give the remainder interest to charity. In this way, you are not disturbing the current use, and are making a significant contribution to your charity of choice.
In addition to leaving bequests to a charity, there are multiple additional ways to leave value to your favorite charity at your death. An often overlooked method is to specify that donations should be made to the charity of your choice in lieu of flowers at your death. This type of request should be made known to family members either in a memorial letter from you to be read at the time of your death or by simply telling your closest family members that this is your wish.
Additionally, you can request in a will that a family member or members make annual donations “In Memory” of you to your favorite charity. You can design this request so that it is nonbinding on your family.
Making your favorite charity the beneficiary of a life insurance policy is also a great way to benefit the charitable work you find important. Often, individuals find themselves with life insurance policies that are paid up but provide little benefit to the overall estate plan. In this case, instead of cashing out the policy (if this is even possible), you may change the beneficiary to the charity.
Many assets have beneficiary clauses that designate who will receive the asset at your death. Retirement accounts are one such asset. By designating the charity as your beneficiary, the charity will receive the asset at your death. Many bank accounts and certificates of deposit have this option as well. This is another attractive technique for assets that are not needed by the family after death. Additionally, if your estate may be subject to the federal estate tax, a gift of tax deferred retirement assets is especially attractive as these assets are typically taxed the most harshly at death.
Finally, if you may be subject to the federal estate tax at death, setting up a charitable trust in your will may provide great benefit to charity and sound tax planning for your estate. The two types of trusts most often set up by will to benefit charity is the charitable lead trust and the charitable remainder trust. The charitable lead trust gives a charity an income interest in an asset (typically an investment account or annuity) for a set period of time. After the time period expires, the asset goes to your family members (or to another non-charitable beneficiary). The charitable remainder trust, on the other hand, pays out an income interest to your family (or other non-charitable beneficiary) for a time period, and then the asset itself is given to charity. Both techniques can provide significant tax planning opportunities.
Giving to charity is important in our society. Planning to do your part does not have to be complicated. The first step is sharing your charitable intent with the professional assisting you with your estate planning, whether that professional is a lawyer drafting your will, a financial planner assisting you with investment strategies, or your local banker providing you banking services. Of course, a great place to begin asking questions about charitable planning is your favorite charity!
