How to Counsel Your Estate Planning Clients About the Benefits of Charitable Planning

by Francis Burton Doyle, Esq., WealthPLAN

Planned giving is commonly defined as “the complementary fund-raising activity which helps individuals with charitable intent make the largest gift possible with the right asset, in the most advantageous form and at the most appropriate time.“

For most of my career as an estate planning attorney the focus of my work with clients has been estate, gift and generation skipping tax planning. When the estate tax exemption was at the low amount of $600,000 it was easy to recommend testamentary charitable gifting as an effective estate tax planning strategy.

With the federal estate tax exemption now at $5 million dollars, the non-tax planning benefits of charitable giving must be given consideration. In my view, a charitable component to a client’s estate plan yields two very important benefits to the client’s family.

First, gifts to charitable organizations enrich the society, which the client’s family will live in after the client’s death. If the client wants his children and grandchildren to live in world where there is a strong educational infra structure, then charitable testamentary gifts that enhance schools and universities are necessary to promote that goal. Similarly, if the client believes that eradicating disease or poverty is an important element of the society he wants his progeny to enjoy, then charitable gifts to the non-profit organizations aimed at eliminating those conditions are crucial.

No family lives in a vacuum, and the value of the money and assets a client’s family receives at his death will be greatly diminished if the society his heirs live in lacks the infra structure which charitable gifts provide.  Given the current budgetary constraints being imposed on federal, state and local governments, it is now more important than ever for private charities to pick up the slack in providing for the needs of the community. In order to do that charitable gifts are required and testamentary gifts are a critical part of the charitable fund raising menu.

In assisting clients in recognizing and implementing their charitable goals, it is important to ask them about the world they want their children and grandchildren to experience. Once they identify the elements of that world, it will become apparent that a charitable gift in their testamentary plan to a charity dedicated to providing one or more of those elements are not only appropriate, but also necessary.

The second important benefit to a client’s family derived from a testamentary charitable gift is that it provides the family with a concrete and enduring exemplar of charity. It has often been said that of all human virtues, the greatest is charity. A testamentary charitable gift creates a charitable legacy, which will morally enrich the donor’s family. A wise grade school teacher once said to me, “Values are caught, not taught.” A testamentary charitable gift is a statement regarding the importance and value of charity, which no words can convey. In these times of financial turmoil and need, charity is more important than it has ever been.

It is incumbent upon the estate planning community to bring the charitable component into the estate planning conversation and both guide and educate clients about the very important long-term benefits that charitable giving provide. In guiding the client along the path I employ two axioms.

First, I advise the client that it is important to adequately provide for his or her family. The old adage, “charity begins at home,” has always had the ring of truth to me. If a client is of relatively modest means, then a small gift is in order.

Secondly, I try to emphasize that charitable giving can and should be made simple. I favor outright pecuniary gifts rather than gifts expressed in terms of a residuary estate’s percentage. A gift of a certain dollar amount can be satisfied quickly and with a minimum of bureaucratic cost and delay. On the other hand, if the gift is expressed in terms of percentage, then the gift cannot be satisfied until the estate is finally settled because the value of the residuary estate cannot be determined until that time.

Further, such gifts usually require the charity to hire lawyers and accountants to ensure that the charity’s percentage is properly determined. These costs diminish the net value of the charitable gift. In addition, in the case of an unmarried person, I favor having the testamentary gift being made from the client’s IRA or retirement plan because those gifts pass income tax free to the charity, but would be taxable to other heirs.

Quote To Ponder
“The two most important days in your life are the day you are born
and the day you find out why.”
~Mark Twain