Is it Time for Charitable Planning in Your Estate Plan?Charitable planning is important: Non-profits are having a particularly rough time in raising funds to support their charitable activities.  There are multiple reasons. Many people who would customarily write a check to make a charitable contribution are simply not able to do so right now, worrying about retirement, low interest rates, etc. Further, with the federal estate tax exemption at an all time high of 11.4 million dollars, folks are simply not motivated to give to charities as an estate reduction strategy. But this doesn’t mean that you should ignore your favorite non-profits; instead, consider them in your estate plan. In fact, most non-profits spend a great deal of time and energy teaching their supporters about charitable contributions in the context of one’s estate plan. Here are some simple ideas to consider:

  • First, consider charitable planning if you support non-profits in your current giving. For example, I am a member of the board of directors of Tempe Community Action Agency. Because I support T.C.A.A. now with my time and financial contributions, it certainly makes sense to support it as part of my estate plan. Bequests of cash may be included in Wills and Trusts.

  • Consider giving assets to a non-profit which are otherwise income taxable when given to a person. The best example is an IRA; if you name your children as beneficiaries, they will pay income tax on the distributions received. On the other hand, a bequest of an IRA to a non-profit is tax free. This plan works well if you have other tax-free assets, such as cash or real estate, to leave to your heirs. I recently created the estate plan of a gentleman whose assets were split down the middle between a million dollar cash account and a million dollar IRA. He wanted to leave money to his nieces for college on the one hand, and create a scholarship endowment for engineering students on the other. I introduced him to an Arizona State University Foundation representative and he ended up creating an endowment to be funded at this death by this IRA. He died several months later, and the IRA funded this endowment, tax free.   This means that money that otherwise would have been taxable to the recipients at possibly the highest income tax rate was paid to the endowment income tax free. What a great legacy he created! His nieces received the cash account, in trust, to pay for their education when they are older. In the meantime, the money is safe and being managed by their parents as trustees.

  • Life Insurance is also a great alternative for charitable planning. Perhaps you purchased a life insurance policy many years ago and the need for the funds or the liquidity has passed. Name one or more non-profits as the beneficiaries and allow them to receive the proceeds upon your death. A second option if you are charitable minded is to purchase a policy now, naming a charity as the beneficiary. You’ll be leveraging your dollars for a larger contribution in the future.

  • Charitable Trusts consisting of donated assets are a more complex option which provides some very significant current tax benefits while leaving the asset to non-profits after your death. A typical example is if you hold highly appreciated assets in your estate. One of my clients owned Intel stock with a very low basis (the acquisition value). The stock was currently worth about one million dollars.  f he’d sold the stock he would have had capital gains of $900,000.00, being required to pay a whopping capital gains tax. Instead, he created a charitable remainder trust and donated the stock to the trust. The trustee then sold the stock, tax free, and invested the proceeds. The trust provides that during the lifetimes of my client and his wife, the trustee will pay them a guaranteed annual return, and upon their deaths, the residue will be contributed to a charity.

As you can see, tough times don’t necessarily require that you ignore your favorite non-profits. Think of them in the big picture of your estate planning!