How to Leave a Charitable Legacy

Use these links to jump to different sections:

• Making a Charitable Bequest
• Deciding on Charitable Giving

There are many reasons why you may want to leave a charitable gift as part of your estate plan. Depending on how you structure it, a planned gift can allow you and/or your estate to obtain income tax, capital gains, or estate tax benefits, provide a stream of income for yourself or loved ones, and, of course, leave a meaningful gift to your favorite charity. 

Some overlook planned giving, as people believe you need to have substantial assets to make it worthwhile. However, there are a range of options available, and they’re worth considering if leaving a legacy gift to charitable organizations is something you’d like to do.

“The issue of gift planning comes up in a variety of ways in my practice,” says Tampa trusts and estates lawyer Rachel Albritton Lunsford, of Barnett, Bolt, Kirkwood, Long & Koche. “I have clients who specifically say, ‘I am making this gift,’ whether to an institution or a charity, and they want to choose what asset to fund it with. We’ll look at the tax consequences to the client, and we’ll also look at the mechanics of the transfer. Or, they may come to us to discuss a lifetime transfer, and then we talk about charitable planning options. Also, in the course of a client’s estate planning they may reference a more general philanthropic intent.”

Making a Charitable Bequest

Much of gift planning is driven by a combination of charitable intent and cash-flow means. “One thing that often gets overlooked when people go to make large transfers,” says Lunsford, “is making sure that they’ve retained enough for themselves before giving the rest away.” She recommends a combination approach to a client’s philanthropy: a current gift and a deferred gift following the death of the second spouse.

There are a range of gift-planning structures, based on factors including amount of assets, transaction costs, amount of retained control and tax implications. “A very simple example is, a client may choose to do a charitable gift annuity, where they give money to an institution, and the institution pays it back in an annuity for the donor’s life and then keeps what’s left,” says Lunsford. “That has a very low transaction cost because, typically, the transaction is directly with the organization.” 

At the other end of the spectrum is establishing a foundation. “Often, once people understand the restrictions on foundations, unless they have a really large amount of money—tens of millions—it may not be worth the transaction costs.,” she adds. “You have to have a grant-making procedure, you have to report everything publicly, etc. For the average consumer, a foundation is not going to be appropriate.”

The average consumer may be able to give through a donor-advised fund, a community foundation or a national-level charitable organization. With a donor-advised fund, the managing organization has ultimate control, but—unlike with an outright gift—the donor remains involved in how funds are distributed. “If you give a gift to a charity, now or at your death, you have no control of what happens after that,” Lunsford explains. “If that charitable recipient changes their mission, or handles it in a way you wouldn’t have chosen, you can’t take it back. Whereas, if you give money to a donor advised fund, the fund makes grants annually, and can be more flexible as to how the money is used.”

Deciding on Charitable Giving

With proposed changes to the federal tax code on the horizon, should you think twice about making a charitable donation plan?  Not necessarily, according to Lunsford: “The feeling among philanthropy professionals is that there are people engaged in philanthropy for tax planning purposes, but those are far fewer than the people engaged in philanthropy out of their passion.”  In other words, giving is not going away.

If you want to learn more about how you can include gift planning in your estate planning and overall philanthropic goals, talk to an experienced estate planning attorney to learn more and explore what would be the best fit for your needs. 

For more information on this area of law, see our overviews of estate planning, wills, trusts, and probate and estate administration.