On a Personal Note: I’ve enjoyed sharing my thoughts with you in this column. I will, however, be moving on to another job in the next few weeks. My boss, Beverly J. Wik, Esquire has agreed to contribute the last three columns of the season. Thanks for your wonderful readership!
Charitable Giving: Five Ways to Leave a Legacy
It’s always interesting to watch the faces of clients when I ask, “Are there any charities to which you want to make gifts?” It seems many people have never considered this question. We’re all conditioned to only provide for our partners or our “blood” relatives in our Wills, regardless of the quality of our family relationships. Yet many of us, when we are able, give to charities. These charities can be related to the arts, serving the poor, providing religious or educational services, helping children or animals, or anything else that touches our hearts. How can you leave a legacy to charity? Let me count the ways:
One: An Outright Gift. Wills generally distribute what you own in three categories: personal property, real property, and the “residue,” i.e., everything else. You can make an outright gift to charity in your Will to using a particular asset, a percentage of your estate, or a specific cash gift. Be careful when giving specific items. You may wish to contact the charity first to determine if the charity can accept the item you want to give. For example, a day care might not have the expertise, resources, or insurance to accept a piece of art or real property.
Two: Life Insurance. Just as you can name any individual as a beneficiary of a life insurance policy, you can also name a specific charity. Depending on your life expectancy, the amount you pay into the policy, etc., your donation amount can be greatly maximized.
Three: Retirement Plans and IRAs. Charities can also be named as the beneficiary of retirement assets. If you are fortunate enough to have an IRA or retirement assets, such as profit-sharing plans, 401(k) plans, 403(b) plans (such as TIAA-CREF funds), etc., you can designate a charity as the beneficiary. The very best property for gifts to charities at your death are these retirement assets. Unlike a charity, an individual beneficiary of retirement assets must pay income taxes on the distributions received at the beneficiary’s federal and state income tax rates, as high as 40%. Charities don’t pay income taxes. So make gifts to charities from retirement assets and gifts to individuals with other assets that are not subject to income taxes, such as insurance, gifts under your Will, etc.
Four: Charitable Remainder Trusts. Charitable Remainder Trusts are created by transferring property to a special trust during your lifetime or at your death. If you’re living, the Trust makes annual distributions to you. If you make the gift to the Trust at your death, the Trust makes annual distributions to another beneficiary. Annual distributions are equal to at least 5% of the trust property’s value. Whatever remains in the Trust at the time of your death or the beneficiary’s death goes to your charity. These Trusts can offer income tax benefits for you or estate tax benefits for your estate.
Five: Charitable Lead Trusts. Charitable Lead Trusts hold property and make annual distributions to a charity for a term of years. At the end of the lead term, the principal comes back to your non-charitable beneficiaries, children, friends, etc. If your estate is subject to estate taxes, estate taxes can be greatly reduced by using Lead Trusts and the property comes back to your beneficiaries.
What about choosing the right charity?
Charities can be vetted in a variety of ways. At GuideStar, guidestar.org., you can search for charities that support causes you support. You can review basic information about the charities including tax forms, funding sources, overhead costs, websites, etc. Additionally, you can verify that a non-profit’s charitable status is in good standing on the IRS website. Remember, you can only claim income tax and estate tax deductions if the charitable gift is to a qualified 501(c)(3) organization. There are other non-profit organizations (e.g., private clubs, lobbying organizations), but donations to such organizations are not tax deductable. Finally, there is a Better Business Bureau for nonprofits. See bbb.org/ us/charity.
Community foundations are also worth looking into. Community foundations manage charitable funds for individuals, families, and businesses, and endowments for charities. Setting up a fund is a way to create a legacy in someone’s honor or for a specific purpose, and you can create donor-advised funds where you or your designees can make sure the purpose of your fund is carried out. In 2009, the Delaware Community Foundation celebrated its 25th anniversary and now has almost 1,000 funds. More information about creating your own fund while you are living or after your death can be found at www.delcf.org.
Not everyone these days feels able to give. But no matter how or how much you choose to give, know that every dime (and volunteer hour as well) is appreciated! As a former non-profit executive, I can personally attest to the positive impact that charitable giving can make toward causes, individuals, and their communities. And it feels great to know that you helped make something happen.
This column is distributed with the understanding that the author, Old Capital Law Firm, and publisher are not rendering legal, accounting, or other professional advice or opinions on specific facts or matters, and accordingly, assume no liability whatsoever in connection with its use.
Renna Van Oot, Esquire practices at Old Capital Law Firm in New Castle, Delaware. www.oldcapitallaw.com.