ELITE ADVISOR BEST PRACTICES

You Can’t Take It with You

Charity and your client’s estate

By Gina Barry

Key Takeaways:

  • If clients are charitably inclined, but worried about supporting themselves comfortably for the remainder of their lives, encourage them to make gifts that will take effect only after they have passed.
  • Clients may also choose to contribute to a charity “generally” and then let the charity’s governing board determine precisely how to use the money.
  • Another option is for clients to establish a fund in their own name and thereby leave a legacy that lives on beyond their lifetime.


Like many people, you and your clients donate money to charity each year. Perhaps your clients donate to organizations dedicated to finding a cure for an awful disease that has affected their life or the life of a loved one. Perhaps they choose to benefit organizations that support and encourage positive growth in our youth, such as the local YMCA. Perhaps they are animal lovers and choose to support the local animal shelter or abuse prevention organization. Most everyone has a cause that is near and dear to their heart.

Many people give charitable gifts each year, which is commendable. If your clients are charitably inclined, but concerned that they may not be able to support themselves adequately for the rest of their lives, encourage them to make charitable gifts that will take effect only when they have passed away.

Voltaire, the renowned French Enlightenment writer and philosopher, once said that “the man who leaves money to charity in his Will is only giving away what no longer belongs to him.” By providing for charity in their will, clients can ensure that their assets will be available not only for their needs, but also for supporting their favorite causes, provided they don’t exhaust all of their assets prior to death. As many advisors are learning, when make a gift to charity, especially of a significant sum, they can designate how and for what purposes the money is spent, which ensures that their money will be used for the purposes that they designate. Advisors are also learning that clients may choose to contribute to a charity “generally” and let the charity’s governing board determine precisely how to use the money. Another option is for clients to establish a fund in their own name and thereby leave a legacy that lives on beyond their lifetime.

In addition to a favorite charity, most people will include family members or friends in their wills. Clients may give a specific dollar amount to a favorite charity in their will; however, leaving a specific dollar amount to a charity in one’s Will may unintentionally divert their remaining funds away from family members or friends whom they may also want to benefit. Unless clients are leaving the entire estate to charity, they should consider leaving a percentage of the estate to a favorite charity and dividing the remaining percentage among family members and/or friends. By leaving a percentage, clients can be certain that regardless of how large or small their estate may be, family, friends and the charity will receive proportionate shares reflecting the clients’ wishes.

Leaving money to charity may also help preserve a client’s estate and allow for a greater amount of assets to be passed along to family or friends. Presently, the federal estate tax threshold is $5.43 million, and in Massachusetts, where I practice, the state estate tax threshold is $1 million. If your client’s estate exceeds the applicable thresholds, estate tax will have to be paid, lowering the amount remaining for their heirs. Any amounts left to charity will reduce the value of their taxable estate, however, thereby reducing or eliminating estate tax. Further, should a client’s estate contain highly appreciated assets, that client should consider designating these assets to charity because a charity can generally avoid paying income tax when redeeming these assets, whereas your client’s estate or heirs would incur income tax for the same redemption.

Instead of leaving money to a charity in a will, your clients may name a favorite charity as a beneficiary of any asset with a designated beneficiary. Most commonly, a favorite charity is named as the beneficiary of life insurance or a retirement plan. It is also possible to benefit a charity using various types of trusts. Because every estate plan is different, it is important to choose the most beneficial option when determining what asset to leave to charity, what amount to leave to charity and what planning technique to use.

Conclusion

Charitable giving can be extremely rewarding for clients, their families, and by extension, their advisors. A client’s donation could fund research that cures presently incurable diseases. A donation could build a playground that bears your client’s name at which neighborhood children play. A donation could provide medical care for an abused animal in desperate need of rehabilitation. A donation can only meet these needs if your clients actually make the donation. You can’t take it with you . . . consider charity.

As country star Kristian Bush croons in his hit song Trailer Hitch, “You can’t take it with you when you go. … Never seen a hearse with a trailer hitch.”


About the Author

Gina M. Barry is a partner with the law firm of Bacon Wilson, P.C., Attorneys at Law. She is a member of the National Association of Elder Law Attorneys, the Estate Planning Council, and the Western Massachusetts Elder Care Professionals Association. Gina may be reached at (413) 781-0560 or gbarry@baconwilson.com.