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Making Charitable Bequests In Your Will or Trust

Many people wish to “leave a legacy” by making a charitable contribution through their estate plan. The Internal Revenue Service, which collects data from large estates required to file a federal estate tax return, reported more than $1.6 billion in charitable bequests from California residents alone in 2012. Charitable bequests are popular precisely because they are deductible from the value of an estate for federal estate tax purposes. (California does not impose an estate tax at the state level.)

What Is a “Charitable Organization”?

There are many ways to provide for a charity in your will or trust. First, you should understand what is meant by “charity.” The IRS is responsible for recognizing charitable organizations. Broadly defined, a charitable organization is one that operates not-for-profit-that is, there are no shareholders who receive dividends-and fulfills one or more “exempt purposes” as defined by law. These exempt purposes include:

– Relief of the poor and underprivileged;

– Advancement of religion;

– Advancement of education or science;

– Building and maintaining public works;

– Promoting civil rights;

– Sponsoring amateur sports competitions; and

– Preventing cruelty to children or animals.

Two common recipients of charitable bequests are churches and schools. Most colleges and universities are charitable organizations, as are most types of religious institutions, including synagogues and temples. And while charitable organizations may not engage in significant political activity or lobbying, many activist groups maintain a separate charity to receive tax-deductible contributions. The Internal Revenue Service maintains a searchable online database, so you can check to see if your favorite group is a charitable organization or has an affiliated charity.

Forms of Charitable Bequests

Once you have decided to include one or more charitable organizations in your estate plan, what are your options for actually making a bequest? The most common gift is a straightforward gift of money. For example, your will might include a clause that says, “I give, devise, and bequeath to XYZ CHARITY, INC., the sum of Ten Thousand Dollars ($10,000.00), for the general purposes of the organization.” The “general purposes” language means the charity can use the gift as it sees fit.

However, there may be cases where you wish to direct your contribution to a specific purpose. Perhaps you wish to leave money to your college to fund a scholarship in your honor. Your will or trust should contain exact language detailing the purpose of your bequest, as well as instructions on what to do if the specific purpose cannot be honored.

Instead of a specific gift of cash or other property, you might also name a charitable organization as the residuary legatee of your estate. This means the charity receives the “rest, residue and remainder” of your estate after all other specific bequests are made. Alternatively, you could name the charity as a contingent beneficiary, meaning it would receive a portion of your estate if your first-named beneficiary (such as a family member) dies before you.

These are just some of the options to consider when including a charitable organization in your estate plan. A qualified California estate planning attorney can advise you of all your options and help decide what is best for your needs and interests. Contact the Law Office of Scott C. Soady in San Diego today if you have any questions.

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