Most bequest donors wish to give more now so they can witness the impact of their generosity during their lifetimes.
Even high-interest and high-capacity donors sometimes have concerns that keep them from making larger gifts. They may fear they will outlive their money and become a burden on others or worry that unforeseen economic or medical emergencies could deplete their savings.
Because of fears like these, some donors, especially those of advanced years, shy away from making larger outright or irrevocable gifts and instead decide to make revocable bequests by will, trust or beneficiary provision. While revocable gifts may make sense at the time the gift is made, circumstances in the donor’s life, changes in tax laws or in the economy may create opportunities to accelerate their bequest.
Consider what has happened to the value of various investments over the past decade. Household net worth has increased dramatically, and many of the beneficiaries are older people whose stock, real estate and other assets have grown undisturbed for decades. During that period of time, substantial tax changes have reduced income, gift and estate taxes for most Americans. Under these circumstances, such individuals may feel wealthier at this point in their lives than they could have ever anticipated in their younger years, and fears that precluded outright or irrevocable gifts may have dissipated with age as their families have matured and are more financially stable as a result.
The “mature” 65+ market now includes three distinct generational groups: the youngest represent the oldest members of the Baby Boomers; the middle group is the smaller Silent Generation; and the oldest of the old are the few remaining members of the GI Generation, the youngest of whom are in their 90s. Let’s examine a few charitable scenarios highlighting donors from these three subgroups who may wish to accelerate a charitable bequest.
Consider the case of Frank, a WWII veteran who participated in D-Day 75 years ago. After the war, he married his high school sweetheart, Agnes, and had a successful business career from
1950 until the early 1980s. Frank and Agnes were active in their church and community and supported several local and national charities. They retired with a generous pension and Social Security that allowed their investments to continue to grow. Because they had no children, their wills left everything to each other, with provisions for the remainder after their deaths to be divided among their charitable interests.
Agnes predeceased Frank, and during the settling of her estate, he was surprised to see that their small nest egg was now worth much more than it was when he last considered his estate plans. After reviewing and updating the list of their charities in his will, Frank decided to accelerate some of their charitable bequests and make outright gifts to endow a scholarship in Agnes’s name at her alma mater and make several large gifts in her memory to their church and another local charity she had been involved with for more than 50 years.
While he no longer has a taxable estate, the gifts in memory of Agnes will immediately provide a large charitable income tax deduction that will allow Frank to itemize his deductions and significantly reduce his income taxes for up to six years.
In our second case, George was born in the 1930s as a member of the Silent Generation, which is also called “The Lucky Few.” He married upon graduation from college but divorced a few years later. He did well in his profession and participated in both a traditional pension plan and 401(k) defined contribution plan. He also acquired a number of residences that he converted into rental property over the years. The mortgages have all been paid except for the home he has been living in since he retired in 2002 while in his early 70s.
He is now in his late 80s and is still active and relatively healthy. His last will was drafted nearly 20 years ago, after his mother passed away. She had been his primary beneficiary, along with some specific bequests to a favorite niece and nephew. The “new” will continues to provide a specific dollar amount to the niece and nephew, but it designates that the remaining funds be equally divided among charities he supported in the communities where he lived during his career.
As an amateur real estate investor, he has done very well through the years but is tired of being an absentee landlord and managing property. He would like to sell the property but is concerned about the substantial capital gains taxes he would incur. After talking with his accountant and other advisors, he decides to accelerate some of his bequests with a combination of gifts of certain parcels of real estate while selling other properties outright. The timing of the gifts and sales minimizes his tax liability, and the deduction also allows him to continue to be an itemizer for income tax purposes instead of taking the new larger standard deduction.
Still healthy enough to travel, George intends to use some of the proceeds from his real estate sales to travel with a group of friends.
Our final example is a married couple, Martin and Lisa, both born in 1949. They are among the growing number of Baby Boomers turning 70. They are both still working—he as an attorney and she as a physician. Martin and Lisa love their work and do not plan to fully retire for at least five years. They have given generously to several charitable interests. Their house is paid for, and their only child is a very successful entrepreneur who does not need or want their money. Even though they plan to leave most of their personal property and art collection to him, they would like to devote the remainder of their assets to charitable purposes at the death of the surviving spouse.
They have just discovered they must soon begin taking required minimum distributions (RMDs) from their IRAs, currently valued at just over $3 million. On top of their other earned and investment incomes, those withdrawals will be subject to maximum income tax rates. They are delighted and relieved to learn about Qualified Charitable Distribution provisions that count toward their RMDs and can shelter up to $200,000 per year.
They have decided to begin funding one of the endowments originally provided for in their estate plans by taking full advantage of the ability to direct gifts from their IRAs, making maximum distributions of $200,000 per year with half of the money to be used for current needs and the remainder used to fund a permanent endowment, which will be augmented by the eventual estate gifts. In the meantime, they anticipate taking full advantage of the Charitable IRA provision each year.
It depends on the circumstances
Not all donors are at the right point in their lives to consider accelerating their bequests. That decision depends on a number of factors, including the donor’s stage in life, family circumstances and current financial situation. Those who are able to accelerate their gifts, however, can reap the benefit of seeing and experiencing the impact of their generosity during their lifetimes and may in turn be inspired to make even more and larger gifts. ■