Taxation & Estate Planning

Charitable Gifts: Points To Ponder

By Joel A. Schoenmeyer

You'd think that making a charitable gift under your Will or Trust would be an easy thing to do. But it's actually pretty easy to mess up. Back when I worked at a big law firm, I had to deal with the estate of a client whose Will left a large amount of money to a charity that didn't exist. A charity that, in fact, had NEVER existed. (Something like the "Pet Care League of Chicago.") This issue was made more awkward because the attorney who drafted the Will was very powerful within the firm. Needless to say, it took (me) a ton of time and effort to fix this issue.

A few observations or tips:

1. Find out the charity's actual name. A good way to do this is to call the charity, or at minimum check their website. If you call, make sure you do so anonymously (unless the client wants the charity to know of the gift).

2. Provide that payment should only be made if the charity is in existence at the client's death. If the client is concerned about charitable deductions, provide that the charity must also be a recognized 501(c)(3) organization under the Internal Revenue Code.

3. To limit (the gift) or not to limit? That is the question. Charities love "no strings attached" gifts. But some donors prefer to direct how their gift will be used. If there's a desire to direct, make sure flexibility is built in to the document. (If you want to leave the money to "Church of X, for their overseas travel fund," what happens if that fund doesn't exist upon your death?)

4. Consider whether you even want to leave the money in a Will or trust. Recognized charities don't pay income tax, so you and they can get a lot of bang for the buck if you leave retirement accounts to them. They pay no income tax on such accounts, whereas your kids or friends might pay a pretty hefty sum. If you have a 300K retirement account, would you rather have 300K pass to a charity, or have 200K pass to your kids (with the rest going to Uncle Sam)?

5. Likewise, consider a gift during your lifetime. Giving 300K as opposed to 300K when you die in 10 or 20 years means that you give much more -- the charity gets the 300K and the time value of money. You get recognition, if you want it (for instance, check out the goodies you get if you give over $10,000 to WFMT -- and know that this kind of thing is typically just the tip of the iceberg).

Full post as published by Death and Taxes Blog on April 23, 2010 (boomark / email).