By Professor Christopher P. Woehrle, JD, LLM
The final chapter of a donor’s story is told through their estate plan. The toll from the pandemic has certainly motivated many to contemplate their mortality and envision what their legacy could or should be. For some, charity is part of their legacy, and as Bob Sharpe Sr. would say, these charities are members of the family.
Periodically reviewing key estate planning documents, including wills, trusts and beneficiary designation forms, can save time and expense in the future.
Here are some key questions donors should be prepared to answer:
1. Is my description of the charity accurate? Be sure the charity’s full legal name and address are stated. Also confirm the tax-exempt status of the charity. The best practice is receiving written assurance or confirmation through review of Publication 78, “Cumulative List of Organizations,” which is available online.
2. How restricted should the use of the gift be? If the donor is not content to leave an unrestricted bequest “for the general purposes” of the charity, a donor would be wise to consult with the charity before the execution of any will or beneficiary designation document.
However, some activities are so integral to the success of an organization that restricting support to them is as effective as an unrestricted gift. For example, colleges and universities routinely discount the sticker price of their tuition as a means of providing financial aid. A gift restricted to scholarships, while technically not unrestricted, is nonetheless benefiting the core operation of providing financial aid.
3. How much and in what form should my gift be paid? Some donors are more comfortable with a testamentary gift of a certain sum or “specific bequest.” Others are more comfortable with a percentage of the remainder after taking care of family members. The remainder or residue approach, in effect, enables the value of all residuary beneficiaries to rise or fall with the growth or decline of the estate.
4. Have I anticipated the unanticipated? Contingent charitable beneficiaries should be named in the event the gift is either not to be accepted or becomes impractical.
5. When would you like your philanthropic story told? Should you alert a charity in advance? Most bequest intentions are not known until death. Donors value their privacy and prefer to retain the right to remove or alter the charity and/or the size of the gift. While every charity would prefer to thank their bequest donors during their lifetime, that will only be possible if the donor wishes to be acknowledged. Those members of your legacy society require stewarding and may even “accelerate” part of their bequest with increased annual giving or a special gift.
6. Have I protected my charity from my own debts, expenses and taxes? That is, will my gift to charity be paid undiminished by anything? The only way to ensure the gift is tax-free to charity is through a carefully drafted “apportionment clause.” ■
Christopher P. Woehrle is professor and chair of the tax & estate planning department at the College for Financial Planning in Centennial, Colorado. As one of Sharpe Group’s technical advisors, Chris is a frequent contributor to Sharpe Insights and authors Sharpe Group blogs.
