Feeling generous? A guide to working your favorite charities into your estate plan

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For some individuals, their estate plan extends beyond close family to include charities or other not-for-profit organizations.

TBY spoke with Cheryl Mothes, a financial adviser at Edward Jones in Jackson; Alexa C. Hart-Lorenz, an attorney at Lorenz & Lorenz LLC; and Lucas M. Haley, an attorney at The Limbaugh Firm, for an introductory lesson in charitable giving plans.

TBY: Could you explain the options available for charitable giving with an estate plan? How do the plans work and what are the benefits of each?

MOTHES: There are a variety of charitable giving strategies: Outright gifts to charities, charitable remainder trusts, charitable lead trusts, charitable annuities, and you can even establish your own or family "foundation" for distributions to charities.

Outright gifts provide benefit to the charity as soon as the estate is settled, and tax benefit to the estate. Charitable remainder trusts are "irrevocable" and allow donors to make a gift while they are living, and receive income from it for the rest of their lives. The remainder of the gift goes to the charity when the donor passes away. Charitable lead trusts allow you to select one or more charities that will receive the income from the trust for a period of time, and the remaining assets then go to your heirs.

Charitable gift annuities are donated to a charity, and then they pay a fixed amount to you or another beneficiary for life. Donor-advised funds allow you to set up your own "foundation," where you make an irrevocable gift to the fund, then direct how the assets in the fund are invested and to whom they are distributed and when.

LORENZ: Charitable giving can take many forms in an estate plan, and which form is right for any one person depends on what you want to give, to whom, at what time. By planning charitable donations as part of your estate planning, you accomplish twin goals of making sure deserving entities receive the desired gift, and potentially benefiting from a tax deduction.

For example, you can donate a vehicle or boat by naming a charitable organization as the TOD or "Transfer on Death" beneficiary on the title application with the Missouri Department of Motor Vehicles. As long as you own the vehicle or boat at the time of your death, the charitable beneficiary receives it upon your passing. You can leave amounts of money or the contents of entire bank/investment accounts by naming a charitable organization as the TOD (Transfer on Death) or POD (Pay on Death) beneficiary, or by simply naming the organization and the amount to be received in your will or trust document.

For larger donations or donations to be made over time, creating a trust and naming a charitable organization as beneficiary is an option, as is creating a family foundation. A trust can be designed to pay out to charitable beneficiaries at the time of your death, or can be structured to allow individual beneficiaries to use a certain portion of the funds and then pay over the remaining amounts to a charitable beneficiary at a later time. A family foundation can be useful for those who wish to devote some part of their assets to charitable causes during their lives and have the work of the foundation and its charitable efforts continue after death.

HALEY: The options for charitable giving within an estate plan are numerous. Many clients choose to make a gift at their death under their will or trust, while others who are less concerned about needing to use the assets during their lifetime will make a gift during their life. From a tax perspective, giving during your lifetime allows you to tax an income tax deduction in the year of the gift, while making a gift at death allows you to take an estate tax deduction. In addition, gifts can be structured to be complete gifts, meaning that a check or assets (stocks, real estate, etc.) are transferred to the charity with little to no restrictions, i.e. $25,000 to a business school scholarship fund. Another alternative is that the gift is left in a trust, giving a family member or a corporate trustee control over the trust, and the terms of the trust would then direct how and when the assets of the trust are to be distributed to the charity or used for charitable purposes.

TBY: What do people need to know about setting up a charitable giving plan with their adviser and the charity of their choice?

MOTHES: It's important to "vet" the charities to make sure they are on solid ground and the funds you are giving are being used as you'd desire. Charity Navigator is a good rating tool, and simply Googling the charity for news articles and information can also give you valuable insights. Then, when you meet with your adviser, you have a sense of which charities you want to support. Based on your asset types, your adviser can review the types of giving mentioned above and make recommendations that would be most beneficial to you and your estate.

LORENZ: Before making charitable giving part of your estate plan, it's important to decide what entities/causes you want to benefit and why. Speak with your financial adviser, accountant or attorney about the type of item you want to donate (i.e. cash, shares of stock, vehicles, art) and the value of the item to be donated, since different types and values of assets to be donated dictate the method and timing of donation. Do your homework. Learn about charitable entities to which you may wish to contribute and find out how the entity uses donated assets, including how much of your donation actually is applied to charitable purposes rather than to administration costs.

HALEY: I would advise that clients seek advice from multiple places before choosing to make a gift. Clearly a charity wants to receive gifts and is often supported primarily by gifts; however, there may be ways to structure the gift that are more beneficial for the client without being less beneficial to the charity.

TBY: Why might a person want to consider working a charity into their estate plan if they haven't already?

MOTHES: Some might feel that by giving to charities, they are reducing the benefits to their heirs. There are strategies available that can pass IRAs and annuities, for example, to charities and replace it with life insurance policies for the children -- the tax savings can be great, and you can feel good about helping those in need with your advanced planning.

LORENZ: Including a charitable donation in your estate plan can do so much more than support a cause you find worthy. It's a great way to teach your children and grandchildren by example about the importance of giving of oneself and performing acts of kindness, and may even benefit you by virtue of a tax deduction that can be used to reduce the federal or state tax burden to your estate and, therefore, to your beneficiaries.

HALEY: Generally, a desire to give money to a charity needs to be present first and foremost. There are tax benefits that go along with making gifts; however, it is relatively rare that the tax benefits would cause someone to make a gift who would not otherwise be inclined to do so.

TBY: What are some of the more popular or interesting charities clients have chosen for their plans? Do you have any advice for choosing a charity? Or, can there be more than one benefactor?

MOTHES: I have found that our community is incredibly generous, and clients have chosen a wide variety of different charities to support. Most of their choices have to do with a personal experience or involvement with one or more charities. And definitely there can be numerous benefactors! When assisting my clients who are charitably inclined, we discuss their core values -- what are they really passionate about -- to help them make that decision.

LORENZ: The range of charitable and philanthropic purposes your estate plan can incorporate is nearly boundless. Many people choose to give to known and well-established organizations, of course, such as the American Heart Association or the Humane Society.

Others have charitable intentions, but prefer that the person administering the estate (a personal representative or trustee) to select from a group of potential recipient groups or organizations, such as "an organization that supports public health" or "an entity whose goal is to provide free karate lessons to underprivileged youth." Your personal representative or trustee can be directed to divide your total donation among several entities or groups, or to provide certain amounts to a certain group or groups.

The charitable donation can even be contingent, such as, "If any of my children fail to complete college, then his or her share shall lapse and be donated to the university," or, "In the event that none of my children remain residents of Missouri, I donate the property known as the farm and acreage to the Department of Conservation to be used for educational purposes." So long as the entity or group to which you or your estate donates is recognized as tax-exempt by the Internal Revenue Service, your estate may be entitled to claim a tax deduction for the amount of the charitable donation.

Many religious entities and local historical and social welfare groups meet the Internal Revenue Service requirements for tax-exempt organizations; check with your accountant to be sure the entity you choose is qualified.

HALEY: As far as popular charities, as you can imagine, a client's church is often included, along with their alma mater. Others include the American Red Cross and the American Cancer Society.

TBY: Anything else readers should know on this topic?

MOTHES: In addition to charitable giving as a part of your estate plan, giving to charities during your lifetime is a good way to help those you care about now versus later, and can help reduce your taxes. Some charities are not only tax-deductible, but also provide State of Missouri tax credits, which can give an even greater tax advantage. Your CPA would have a list of those charities that qualify for the tax credits.

LORENZ: As with any charitable donation, be sure to investigate fully and don't be shy about asking for information from the groups or entities you may wish to donate to. Any reputable charitable [organization] should be able to provide you information regarding how donations are used, and many larger organizations even have in-house planned giving departments, which offer specialized structured giving options such as annuities, which benefit the donor during life and then the charitable entity after the donor's death.

HALEY: An interesting area of charitable giving is charitable gift annuities. Many charities, and specifically universities, offer these. The basic structure is that the client makes a lump sum gift to the charity, with the gift being used to purchase an annuity, which pays the client a fixed percentage of the gift each year for their lifetime. At the client's death, the remaining value of the annuity is paid to the charity. This offers a structure for clients to give away cash or assets while still receiving an income stream for their lifetime. This is a popular gift structure. In addition, clients will sometimes choose to gift appreciated assets. If a client has owned a particular parcel of real estate or a stock portfolio for many years with large appreciation, those assets can be given to the charity, with the client receiving a tax deduction for the fair market value of the gift, and the charity can then sell those appreciated assets without having to pay capital gains tax on the proceeds. This option, if appropriate, can provide great benefit to the client and the charity.