What is Planned Giving?

There are many ways in which someone can make a positive impact in the world. It may be as simple as smiling at another person and improving their day. It may be donating funds or goods to a charity, volunteering time or expertise, taking direct action to improve a situation, or even creating a charity to advance a cause.

How you approach charity is a uniquely individual experience. It is defined by your story, your past, and how you grew into the person you are today. We are only given a limited time on Earth, so how you choose to spend that time is part of who you are. One question to ask yourself is: How do you want to be remembered?

Many people when they think of estate planning think of a “will” and how their assets will pass when they die. However, they often forget the second part of the name: “Last Will and Testament.” Merriam-Webster defines a testament as “a tangible proof or tribute” or “an expression of conviction.” When preparing your estate plan, you should consider the convictions by which you have tried to lead your life, and what kind of message you want to leave behind to your children, friends, and community. You are not just transmitting wealth through your estate plan. You are also transmitting your goals, your values, and what was important to you. The author Shannon L. Alder put it succinctly: “It is not what you leave to your children that matters, but what you leave in them.” This applies to more than children. The memories created with family, friends, and community are also part of the legacy left behind.

That is one of the core goals of planned giving. It is using your estate planning as an expression of what you believed in life, what was important to you and what you attempted to improve in the world. Planned giving can be one of the final opportunities to show your loved ones, and your community, what was important to you. Below are just a few of the ways you can use planned giving to show your convictions and leave a lasting testament regarding your beliefs.

Planned Giving Through Your Will or Revocable Trust

One of the simplest and most common ways to make a planned gift is through a will or revocable trust. These documents allow you to direct where your assets will go after your death. By including a charitable organization in your estate plan, you can create a gift that continues your support of causes that were important to you during your lifetime.

A charitable gift provided in a will or revocable trust does not generally affect your financial security during life because you retain complete control over your assets while you are living. Your estate planning documents simply provide instructions for what should happen to your assets after your death.

There are three common ways to benefit a charity through a will or revocable trust.

1. A Specific Dollar Amount

The first option is to leave a specific amount of money to a charity. This is sometimes called a pecuniary bequest. For example, your will or trust might provide, along with any other specific dollar gifts you wish to make:

“I give the sum of $10,000 to [Charity Name].”

If your estate has sufficient funds, the charity will receive that exact amount regardless of how much your estate ultimately grows or declines in value. Your estate plan should also address what happens if there are insufficient assets to satisfy all gifts. An attorney can help establish rules regarding which gifts are reduced first if that occurs.

2. A Percentage of Your Residuary Estate

Another option is to leave a percentage of what remains of your estate after expenses, debts, taxes, and any specific dollar gifts have been paid. For example, you might include in the residuary provision in your document: “I give ten percent (10%) of my residuary estate to Charity Name.”

Under this approach, the charity shares in the value of the estate that remains after the administration of the estate has been completed. If the estate grows significantly, the charitable gift grows as well. If the estate is smaller than anticipated, the charitable gift will be correspondingly smaller.

3. A “Wipeout” or Contingent Provision

Many people name family members, friends, or other loved ones as beneficiaries. However, life is unpredictable, and sometimes all of the individuals named in a will or revocable trust may pass away before the person creating the plan.

A “wipeout” provision addresses that possibility by stating where assets should go if no other named beneficiaries remain. If your will or revocable trust does not include a wipeout provision, then the assets would pass based on the laws of the state you lived in and may go to distant family members you have never met. In rare cases, if no heirs can be identified, assets may ultimately pass to the state under applicable law. Including a wipeout provision may help avoid assets passing in ways you may not have intended.

For example, you might provide that if all of your named beneficiaries have predeceased you, then a percentage or all of the remaining assets should pass to one or more charities, as well as other friends, distant family, or anyone else you wish. While no one hopes such a provision will ever be needed, it can ensure that assets are used for meaningful purposes consistent with your values.

Directing How Your Gift Is Used

For some donations, you may wish to support a charity’s overall mission. For others, you may want the gift directed toward a specific purpose within that mission.

For example, you might state in the provision making the gift:

“To Cancer Research Center, for their use in researching pancreatic cancer, or if they are no longer researching pancreatic cancer, for their general purposes.”

This provision expresses the donor’s desire to support pancreatic cancer research while also giving the organization flexibility if circumstances change in the future. If the charity no longer conducts pancreatic cancer research, the funds can still be used to support the charity’s broader mission.

This illustrates an important principle in charitable planning. It is often beneficial to balance your specific goals with practical flexibility. If restrictions are drafted too narrowly, the charity may have difficulty using the gift effectively years from now because programs, needs, and priorities can change over time.

There is no universally correct approach. Some individuals are comfortable providing unrestricted support to a charity they believe strongly in. Others prefer to focus their donations on a specific program or area of need. What you choose to do will depend on your personal goals, values, and level of comfort. A conversation with the charity can help ensure that your gift aligns with both your goals and the organization’s future needs. You should also consult your own attorney, tax adviser, or financial adviser before making changes to your estate plan or beneficiary designations.

Retirement Accounts as a Planned Giving Opportunity

Another often-overlooked planned giving tool is naming a charity in your retirement account beneficiary designation to receive a portion of the assets held in that account.

For example, a person might name family members to receive 90% of an IRA and a charity to receive the remaining 10%. In many cases, changing a beneficiary designation can be simpler than modifying a will or revocable trust, as it does not require the same signing formalities to effectuate revisions.

There can also be income tax advantages associated with this approach. Retirement accounts often contain funds that have never been taxed for income tax purposes. When individual beneficiaries inherit a traditional retirement account, they generally must pay income tax on distributions they receive and may be required to withdraw the funds over a period determined by applicable law. Charitable organizations, however, generally do not pay income tax on distributions they receive.

As a result, some individuals choose to leave a portion of retirement account assets to charity while leaving other assets to family members. Depending upon a family’s circumstances, this approach may improve the overall tax efficiency of the assets being transferred.

Under current federal law, charitable gifts made at death generally qualify for an estate tax charitable deduction, whether made through a will, revocable trust, or beneficiary designation. Because tax laws can and do change, individuals should consult regularly with their legal, tax, and financial advisers regarding how the rules apply to their particular situation, and how changes may affect them.

A Lasting Legacy

Planned giving is ultimately about more than money. It is about transmitting your values, expressing gratitude, and establishing a legacy. It is an opportunity to support causes that have shaped your life and to communicate what mattered most to you.

Whether you choose to include a charity in your will or revocable trust, designate a percentage of your estate, create a contingent gift, or name a charity as a beneficiary of a retirement account, the decision is deeply personal. There is no single right answer. The best planned giving strategy is one that reflects your own goals, experiences, convictions, and beliefs.

Planned giving can be one final opportunity to demonstrate the values and causes that mattered most to you. With thoughtful planning, your estate plan can do more than transfer assets. It can help continue the work and convictions that shaped your life.

Thomas A. Tietz, Esq.
Shenkman Tietz