Estate Plans and Gifts to Charities

A client recently decided to leave everything to an animal welfare organization if her spouse does not survive her.

She asked, are there any criteria that a charity must meet?

First, if you want the gift to count as a charitable one for federal estate tax purposes, then yes. The organization must be designated as a tax-exempt organization under 501(c)(3) of the Internal Revenue Code. Of course, the charitable deduction for estates is only relevant for those who have to pay that tax. For many individuals, this is irrelevant: the federal estate tax for 2017 kicks in only for single individuals with assets in excess of $5.49M or married individuals with combined assets over $10.98M.

Second, look at the structure for the organization. Is it formally associated or incorporated? If yes, make sure that it is a "nonstock" corporation, such that no individual owns it or has a right to any share of its earnings or assets. Use the corporate name and federal EIN/TIN to help identify the organization particularly. If the organization is not formally incorporated, you will want to discuss this with your attorney. Will the organization still be around when the time comes? If not, should you set up a new organization as part of your estate plan, or consider an alternate beneficiary?

Third, charities and the work they address change over time. Animal welfare organizations are no exception. It is important to note which organization’s values most closely align with yours. Some organizations have shifted over time. PETA and the ASPCA come to mind, particularly when it comes to certain specific issues about which people care deeply. For example, I had a client who wanted to leave out an organization because it had recently taken what the client considered a ludicrous hard-line stance, to-wit: keeping domesticated horses is inhumane. The client, who loves his horses, simply couldn't countenance that (sizable) gift any more if it was going to work to prevent others from experiencing his greatest joy.

Fourth, watch administrative costs. Consult one of the many organizations that examines these expenditures, such as
guidestar.org. You can see how much the organization actually spends on administration and fundraising compared to the programming and the work about which you care most. Would you rather your gift fund the charitable work about which you actually care, or fundraising/overhead? Expectations and reality are often very far apart.

Fifth, consult with the organization and consider whether restrictions on your gift are worthwhile or will remain relevant with the passage of time. Many individuals feel that earmarking a gift is the best way to make sure that the donor's money is spent on the particular cause or for a particular purpose about which the donor cares. When this is done in coordination with the organization or in response to a solicitation, restricted gifts can work beautifully to achieve discrete objectives. But oftentimes, unsolicited restricted gifts are made without any prior consultation whatsoever, and thus without regard for the existing needs of the recipient organization. Sometimes the will or trust is so stale that the restricted gift no longer reflects the challenges or needs of the status quo. The alternative is to consider an unrestricted gift, which allows the organization to focus on the needs it sees.

Sixth, consider the alternatives of a trust (as an estate planning device) or establishing a fund with your local Community Foundation. Your attorney can help you draft a trust or fund letter that will essentially form a dynamic plan that regularly re-evaluates the appropriateness of the recipient according to the criteria, purposes, or objectives that you establish.

Want more information, or to talk about these or other options?
Schedule a consultation today.
© 2015 The Law Office of Bary W Hausrath, PLLC Contact Us