Published on:

Providing for Charity in Your Estate Planning

ESPN recently conducted an investigation of over 100 charities founded by professional athletes and found that nearly three-quarters of them failed to meet nonprofit industry standards. In some cases these “charities” failed to distribute any funds for their stated charitable purpose. Indeed, many athlete charities were barely funded and ran no programs whatsoever.

There’s no point to starting a charity if you don’t (or can’t) provide the means for its organization. If you’re looking to include charitable giving as part of your estate planning, there are many options to consider. You could start your own charity, either during your lifetime or as part of your estate, but as the ESPN report demonstrated, creating a functional charitable organization involves more than making a vague promise of future funding. It almost always makes more sense to work with an established, reputable charitable organization that shares your goals and values.

Specific Bequests

The most straightforward approach to giving is to make a specific bequest in your living trust or last will and testament. Most established charitable organizations have “planned giving” officers who can work with your estate planning attorney to include the appropriate language. You can specify how such a bequest must be used, either for a specific program administered by the organization or for its “general purposes.”

You should also restrict any gift to organizations that maintain their tax-exempt charitable status under the Internal Revenue Code. Recognized charities are normally classified as a 501(c)(3) organization. In some cases, a charity may be an umbrella for several smaller charitable subsidiaries. You should always review the legal status of any organization you intend to include in your will or trust with your estate planning attorney.

Charitable Remainder Trusts

Another common method of planned giving is a charitable remainder trust. Unlike a revocable living trust you might employ for general estate planning, a charitable remainder trust is an irrevocable transfer of your existing property to an organization that serves as trustee. This organization must be a recognized 501(c)(3) charity. The trustee-charity then manages and invests the trust property and pays you a stated percentage of the income as specified in the trust.

In establishing a charitable remainder trust, you determine how much income you should receive and for how long. For example, you might direct the trustee-charity to pay you a fixed percentage of income (IRS rules say it must be at least 5%) each year for the duration of your lifetime. Or you might direct a fixed amount be paid for a limited period of time, say $10,000 per year for 10 years. However you structure the trust, however, it cannot be changed once established. As the name suggests, a charitable remainder trust pays whatever assets are left-the remainder-to the charity itself once you no longer receive any income, either due to your death or the expiration of the time period specified in the trust instrument.

Any property you leave to charity, whether by a specific bequest or a charitable remainder trust, is excluded from your estate for purposes of determining federal estate tax liability. A charitable remainder trust has the added benefit of allowing property to appreciate in value without any capital gains tax liability. In other words, if you transfer property to a charitable remainder trust and the trustee-charity sells or invests it for a profit, the proceeds won’t be taxed.

Regardless of how you choose to make charitable gifts, you should always consult with an experienced California estate planning attorney who can apprise you of all the relevant tax and legal considerations. If you’re in the San Diego area, contact the Law Office of Scott C. Soady today at 1-877-435-7411.

Contact Information