Many individuals are blessed with the ability, foresight, and compassion to include a charitable cause in their estate plan. Though many people give to their favorite cause, organization, or institution during their lifetime, these gifts are often limited by financial obligations.
A gift after your death allows you to contribute to something important to you. We have had the privilege of helping many clients establish estate plans focused on philanthropy.
Including a Charitable Gift in a Will or Trust
If you have started the estate planning process, you probably already have a will or trust drafted. If not, there are innumerable reasons to draft these essential estate planning documents. It is easy to make charitable gifts through wills and trusts.
If you include language in your will or trust that directs your Personal Representative or Trustee to make a charitable gift, then they must do so, assuming the assets are available. Though the process is straightforward, consider your overall estate plan when making any charitable gift.
First, remember that surviving spouses are entitled to, at the very least, a surviving spouse share. Second, consider how the gift is deducted from your estate in relation to other gifts or bequests. To provide a particular asset or a set amount of money to a charitable organization, should your estate give that gift first? Should the gift be made after other gifts or bequests are made, or should the residual or remainder of your estate go to the charitable organization?
Remember, a probate court will take out certain fees and ensure a surviving spouse is taken care of. After that, an estate pays gifts in the order in which they are listed. If your charitable gift is the last gift to be paid and no assets are left in the estate, then your estate cannot make the charitable gift.
Charitable Remainder Trust
Protect Your Gift with a Charitable Remainder Trust or Charitable Lead Trust. Leaving a legacy is important, but so is the peace of mind that comes with knowing your legacy reflects your wishes long after you are gone. Many individuals want to make charitable gifts as part of their estate plan but want to ensure the gift is lasting or supports specific charitable activities.
A Charitable Remainder Trust (CRT) allows you to place valuable assets, often an income-producing asset, into trust for a period, for life, or for the life of someone you choose. It allows you or someone to receive an income stream for life or a specific period.
The CRT assets can then be transferred to charity at the end of a specified period. Similarly, a Charitable Lead Trust (CLT) can distribute assets to a charity and ultimately pass the assets to your heirs. But in either case, when you create your CRT or CLT, you can establish terms, such as:
- The terms, frequency, and number of distributions.
- How the distributed assets are to be used.
- When and how the assets will transfer from the trust to another entity.
- The scenarios under which the assets might revert to the trust or the Testator's heirs.
Establishing a Charitable Foundation
You need not be a famous billionaire to establish your own charitable foundation. Instead, you need vision, assets, and proper planning to form a foundation that will make a difference. As with any organization, conduct due diligence to ensure the mission is properly pursued. For a charitable foundation, this means:
- Drafting the documents.
- Properly operating the organization.
- Achieving and maintaining non-profit status.
- Managing the finances of the foundation.
These activities must be conducted under both state and federal law. Even starting a charitable foundation in Maryland, for example, requires going through processes with the State of Maryland and the Internal Revenue Service.