One of the best parts of this job is working with people who want to include charitable giving in their estate plans. Here's how we like to talk about this.
We start with how charitable giving fits into the plan. Many of our clients' primary beneficiaries are individuals (like children), but they want to include charitable giving in a small way, typically by giving a small amount to their church or another organization they care about. For those folks, generally deciding on a gift is just a matter of deciding on an amount and an organization.
For others, charitable giving is the main objective, or is a significant portion of their plan. For those clients, the first decision is typically how to balance their charitable objectives with their other objectives. We encourage our clients to think in terms of percentages rather than set dollar amounts. So, for example, it might be that 50% of all of the client's assets would go to charity, and 50% would go to individuals. By using percentages instead of set dollar amounts or specific assets, we make sure that regardless of changes in our clients' asset structure and total net worth, the various individuals and charities will remain proportional to each other.
The second part of the discussion is to think about where the client wants their impact to be felt. This can be an organization (or organizations) the client wants to support, or a more general cause (or causes). If a client prefers to benefit a general cause, rather than a specific organization, generally that is done through a foundation, usually a local community foundation in the area they want to be benefit. (In the interest of full disclosure, I'm on the board of our local community foundation, the Community Foundation of Central Wisconsin. Wisconsin Rapids and Wausau also have their own foundations.) Our local foundation has funds that are held for the benefit of specific causes, such as education, the environment, helping people, education, and wellness, as well as a fund for the benefit of the community in general. With these funds, a committee put together by the foundation reviews grants each year and awards grants to the projects and organizations that best meet the fund objectives. Giving to these funds is a great option for clients who want to spread their giving among a number of local organizations with a similar objective. For clients who prefer national causes, there are larger national foundations who do something similar on a national scale.
The next part of the discussion is how the client wants their impact to be felt. This is a discussion about whether to make an immediate or endowed gift. An immediate gift is a gift directly to the organization. This is a great way to have an immediate impact, since most charitable organizations have more needs than resources. Clients can expect when they give an immediate gift that some of the funds might be held in reserve, but most will be spent on the mission of the organization within a relatively short time frame, for things like a new building or expanded services.
The other option is to give an endowed gift. An endowed gift means the funds are donated to an organization that will manage them for the benefit of a particular charity or charities. Most large charities have their own endowment. So, for example, Wisconsin Public Radio has an independent friends group that invests donations and pays them out to WPR over time. The same is true for UWSP. For smaller local organizations, this is again where local community foundations come in. So, for example, if a client wants to give an endowed gift to the local chapter of the Boys and Girls Club, the gift would be given to the local foundation, and the foundation would manage the funds for the benefit of the Club and pay out the funds over time. Typically, sustaining gifts are used for staff salaries and operations, and allows a solid stream of on-going income for the organization. This does not have the kind of immediate impact that an immediate gift has, but would have an impact over a much longer time period.
The final thing we discuss is structuring the gift to save taxes for our clients. With a current estate tax exemption amount of $11M, very few of our clients have to plan around estate taxes. However, most have qualified accounts (traditional IRA, 401(k), 403(b)) that have deferred income taxes that can be removed or eliminated with charitable giving. We think charitable objectives should drive structure, not taxes, but charitable giving presents many opportunities to save taxes that we want to be sure clients are able to take advantage of.
The great thing about charitable giving is that there are no right answers. In many cases, our clients have an opportunity to make gifts with massive impact, and we want to make sure they are aware of all the different options they have for directing that impact.
Considering a plan that includes charitable giving? Call our office to set up your free consultation.