Leaving a Legacy to Charity
Many people decide to leave a legacy by contributing to their community through charitable giving. For example, many folks tithe 10% of their income to church or are annual members of theatre companies like the Kennedy Center or Arena Stage. Others commit funds to their former school or support historically black colleges through the United Negro College Fund. Still others choose to leave a legacy by supporting economic empowerment through the US Black Chamber’s Economic Development Fund. But while these aims to ‘give back’ are commendable, care should be taken to ensure they are sustained. When the person who has made consistent contributions to causes they hold dear, suddenly passes away or becomes ill, these contributions are jeopardized. To avoid this, I recommend that charitable givers pass on their visions as part of their estate plan. In this way, our charities will not lose significant sources of revenue and the mission that has been important to the donor can continue.
There are numerous options for setting up a charitable contribution in your estate plan. The easiest is a simple bequest through your will that is a direct distribution upon passing through the probate process. I have outlined three options below.
1. Charitable Remainder Trusts (CRTs) are irrevocable, tax-exempt trusts in which you place assets to provide income for yourself during a specific period after which, the remaining assets will be turned over to your chosen charity. The trust can be funded with assets such as bonds, mutual funds, stocks, and real estate. It offers flexibility, a lifetime income stream for you, and significant tax benefits to you and your heirs. Ultimately, it may be even more beneficial for you than a simple bequest.
For instance, if you have an appreciated asset like real estate, and you sell the property yourself, you will likely pay high capital gains taxes. But if you transfer the property to a charity through a CRT, the trustee may be able to sell the property with no gift, estate, or capital gains taxes for the donor. The trustee can then set up an investment that will provide an income stream for you, which will be subject to ordinary (i.e. lower) income taxes and capital gains. At the death of the last beneficiary or the end of the trust period, the remaining amount is distributed to the named charity.
2. A Charitable Lead Trust is different from a CRT because it allows you to place in trust assets that will be left to your heirs; however, you specify a set number of years during which a guaranteed amount in the trust will be paid to a charity. You pay a discounted gift tax when transferring assets to the trust and the trust’s beneficiaries are free of estate taxes.
3. Setting up a Foundation is a way to provide systematic gifts of special importance to you, the founder. Foundations can fund college scholarships, research grants, and the maintenance of collections or real estate, among others.
We must be strategic and thoughtful in developing our estate plans; it should include our values and strengthen our legacy, ideally while saving tax payments. Know your options when planning. But nothing will happen to forward your goals and your legacy if you do not plan.
By: Aimee D. Griffin, Esq.
Featured Article in The Washington Informer, August 2016