Posted March 1st, 2005

Planning Matters

Experienced gift planners know that planned gifts are best considered in light of an individual’s overall gift, estate, and financial plans. Yet many in the profession begin their conversations with donors by asking if they have considered a certain type of gift, such as a bequest, charitable trust, gift annuity, or other arrangement, without considering that individual’s needs. While this approach can result in some gift activity, the impact of a gift can often be magnified by considering it in light of an individual’s overall estate and financial plans.

Knowledgeable gift planners may do a better job of informing, educating, and motivating donors to consider their plans for the ultimate disposition of the property they have spent a lifetime accumulating. This month’s “Planning Matters” will answer several questions that gift planners may face on a regular basis.

Question: Isn’t most estate planning really just tax planning for the transfer of wealth by the wealthy?

Answer: Estates are not just mansions and acreage behind gates and walls. An estate is the aggregate of assets that an individual has accumulated over a lifetime. Each year less than 5% of persons who die are even required to file a federal estate tax return. Likewise, many states have relatively generous exemptions allowing most of the decedents’ estates to pass to beneficiaries. Despite this fact, almost everyone has an “estate” and should want to consider its eventual disposition.

Question: My donors are well off and well advised. Surely they have already planned their estates.

Answer: While the likelihood of planning increases with age and wealth, large numbers wealthy and near-wealthy adults have neglected their planning needs. See page 1 for more information and statistics concerning estate planning and the wealthy.

Question: What part do wills and trusts play in the estate planning process?

Answer: These instruments are often used as the primary tools to transfer assets to friends, family, and charities upon death, but increasingly assets are being transferred by other means, such as insurance and retirement plan beneficiary designations.

Question: Does that mean that a will or trust may not be effective to transfer assets at death?

Answer: Much of a person’s property may pass by other means. A will only affects assets that compose the “probate” estate, assets that are not otherwise disposed of by other means. Assets must be legally owned by a trust for the trust to control them. Retirement plan balances typically have named beneficiaries, and those assets may not be affected by provisions in a will or living trust. Likewise, savings and checking accounts are often owned jointly with right of survivorship. Brokerage accounts in most states may designate a beneficiary at the death of the owner. Real property may also be titled in a fashion that will pass automatically upon death. Without a will, property not otherwise disposed of will be distributed according to state law.

Question: This sounds complicated. Can you give me a practical example?

Answer: Consider the case of Mrs. Smith, a widow with no children who has decided to divide her estate equally between a niece, a nephew, and her favorite charities. Her non-taxable estate totals nearly $1 million, including the following:

She visited an attorney and requested that he draft a simple will that divided her estate among her niece, nephew, and charities.

The IRA named the niece and nephew as beneficiaries, and later she added the nephew’s name to her bank and brokerage accounts. Depending on the circumstances, her assets would be divided as follows:

With proper planning and coordination of her estate plans, the niece, nephew, and charitable shares could each have received over $325,000 and the income tax on the IRA balance could have been avoided.

Question: Why do people avoid estate planning?

Answer: There are many reasons. Some think the process is too expensive or complicated. Others do not wish to consider their own mortality. Procrastination is a major factor, but as we have seen from the Smith example, the consequences can be significant.

Question: What role can a development executive play?

Answer: There is no single answer. But virtually any program can take steps to communicate the importance of estate planning for all of the practical reasons people should want to have their affairs in order—avoiding family disputes, providing for loved ones and charities, reducing taxes and expenses, and so forth. Your efforts in encouraging the overall process may serve as a catalyst to finally move someone to action—including acting on their charitable intentions.

The publisher of Give & Take is not engaged in rendering legal or tax advisory service. For advice and assistance in specific cases, the services of your own counsel should be obtained. Articles in Give & Take may generally be reprinted for distribution to board members and staff of nonprofit institutions and other non-donor groups. Proper credit must be given. Call for details.

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