ELITE ADVISOR BEST PRACTICES

Understanding Year-End Charitable Giving Options

What advisors need to know about these and other questions about charitable deductions

By Hyman G. Darling

Key Takeaways:

  • Restricted gifts allow clients to designate the use of the funds for specific purposes, such as to add to a building for the charity or to add to a scholarship fund.
  • Before making a restricted gift, you should contact the charity to be sure that they will accept the gift under the terms that you dictate.
  • A charity’s uses and needs typically change over the years, so an unrestricted gift (one without conditions) is often the most useful for long-term philanthropic planning.
  • Most charitable organizations have planned giving staff members to help you and your client with the acceptance of gifts. Contact planned giving staff before finalizing an intended donation.


Now is the time to remind clients to consider making charitable gifts before the end of the year. If pledges were made during the year, this is the time to make the gift. As many advisors are aware, if a client passes away prior to the end of the year and the gift is not made, it will not qualify as a charitable gift for deduction purposes on income tax returns.

In any event, there are several options for making gifts:

  1. Clients may make a specific gift of an item or dollar amount to a charity. For instance, they may give a vehicle that they own at the time of their death to the charity.

  2. A further general bequest is one that is stated as a dollar amount, such as “I give $50,000 to XYZ charity.” Again, provided that the assets are includable in a client’s estate and that he or she has those assets left, then the charity will receive the funds.

  3. A residuary bequest could be a percentage or dollar amount of the estate when a client dies. For instance, he or she could leave the greater of 1 percent of their estate or $10,000 to the charity, regardless of the amount they have left. You could also specify that the charity would receive that gift only if the gross estate is a certain sum. For example, a client might give 5 percent of the estate to XYZ charity as long as the estate is $500,000 or more. But, if the estate is less than $500,000, then the charity would receive the sum of $10,000.

You can either restrict the gift or keep it as an unrestricted gift. A restricted gift is one for which there is a purpose or specific designated use of the funds, such as to add to a building for the charity or to add to a scholarship fund. (A recent client of mine wished to add a specific dollar amount to a fund for flowers at her church for Sunday Mass every week.) However, some charities will not accept a restricted gift if it is too limiting or if the fund is too small to make it productive, such as having only the income from a very small bequest be used for the intended purpose. Before making a restricted gift, you should contact the charity to be sure that they will accept the gift under the terms that you want.

As most charities’ uses and needs change over the years, an unrestricted gift (one basically without any conditions) is the most useful, because the charity may then utilize the funds for whatever purpose it feels is most important and appropriate.

Finally, often a client wants to set up funds for a scholarship but the scholarship fund is relatively small and therefore the income would not make a significant difference. In this type of situation, you should check with the charity to be sure that they would accept a gift under the terms of adding the funds to an existing fund where all funds may be comingled to make a more significant gift. If not, then the Community Foundation in your local area may be available to administer the gift, as it may already have in place the appropriate guidelines and committee to review requests for scholarships funds as well as to attend to any investments of the assets.

Most charities, colleges, etc., have planned giving staff members or at least volunteers available to assist with the acceptance of gifts, and these individuals should be contacted before finalizing your intended donation.

Conclusion

As we head into the hectic holiday season, even highly organized, well-intended clients and their advisors are prone to letting important planning deadlines slip. Now is the time to sit down with clients to clarify their year-end charitable planning goals. A few minutes of smart thinking today could pay big dividends on April 15 while making a well-deserving student, not-for-profit organization or educational institution very happy for years to come.


About the Author

Attorney Hyman G. Darling is chairman of Bacon Wilson, P.C.’s Estate Planning and Elder Law departments. His areas of expertise include all areas of estate planning, probate, and elder law. He is a frequent lecturer on various estate-planning and elder-law topics at local and national levels, and he hosts a popular estate-planning blog at bwlaw.blogs.com/estate_planning_bits. He may be reached at (413) 781-0560 or HDarling@BaconWilson.com