Many attorneys believe it is inappropriate to raise the issue of charitable giving during the estate planning process. These attorneys believe they are being judgmental toward their clients if they raise the option of charitable giving at death.
I, on the other hand, make legacy planning an important part of the estate planning discussion. At the outset, in the initial letter and forms sent to my new clients, I ask them if they want to make testamentary charitable gifts and what charities they are inclined to favor. As the estate planning attorney, it is my role to raise the issues that my clients do not always think about.
Life insurance, Individual Retirement Accounts, and qualified pension and 401(k) benefits can all be easy ways to promote charitable goals at death. Designating a charity as beneficiary simply requires completing and filing a beneficiary designation form—no attorney is necessary. Retirement assets can be especially beneficial for charitable giving because taxable IRAs and qualified retirement benefits may be subject to income taxation when received by children, reducing the amount they ultimately receive. However, when these assets are received by a charity, they are not subject to income taxation, meaning 100% of the benefits are available to promote your charitable interests.
I have developed five estate planning principles during my 44 years in practice:
First, most clients need and want to provide sufficient liquidity at death to maintain their surviving spouse and possibly lineal descendants in a standard of living similar to the standard that the family enjoyed when the patriarchs and matriarchs were living. If so, this must be satisfied, even to the exclusion of charity.
Second, my clients have obligations to their children—to love their children, to provide their children with structure, to provide their children with the necessities of life, and to provide them with opportunity. But providing an inheritance to children is not an obligation.
Third, your charitable passions are likely not your children’s charitable passions. Yes, you may believe that you take care of your charitable interests during your lifetime but need not provide those same charities at your death. But unless you provide for your favored charitable interests at death, it is possible that those particular charities will not be supported by your family after your death. If you want to promote your charitable passions, you need to continue to support those charitable desires through charitable planning.
Fourth, I strongly recommend that your charitable bequests NOT be made to operating funds. Contributions to operating funds may be consumed or exhausted within a short period after your death. Instead, leave your charitable bequest to your favored charity’s endowment fund. The income from the fund may be added to the charity’s annual operating fund, but the bequest will be held in perpetuity and will produce income for your favored charity for generations to come.
Fifth, I believe everyone can be a philanthropist, not just the wealthy but all of us. Even if you have a small estate, you have the means to make a difference when you die. We can all change the world. Charitable giving at death can make it possible for each one of us to make a profound difference in the lives of others well after we are gone.
