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University of Colorado at Colorado Springs (B.A., 1973)
University of Denver (J.D., 1976)
There are several ways to manage charitable donations in the course of estate planning, and some have significant tax advantages.
The most common kind of charitable gift is a "special charitable gift" set forth in a will or a living trust. Basically, this is a statement directing a personal representative of an estate, or a trustee, to transfer funds to a charitable organization. When this is a special gift set forth in a will, it has priority over "residuary gifts" which can be defined as gifts which are made, usually in percentages, from whatever is left in an estate after expenses are paid and special gifts have been completed.
Special gifts are generally specific amounts of money, or specific properties, which are to be transferred to one or more persons. When such gifts are to be made to a charity, it is important to be certain of the correct name that the charity, and that the organization qualifies as a charity under Section 501(c)(3) of the Internal Revenue Code.
People who intend to make gifts through wills or trusts must be careful to be certain that there will be assets available to make the gifts. Many people spend considerable time, energy, and money in preparing estate planning documents without considering that their assets are tied up in joint ownership, "pay on death accounts," or other arrangements designed to avoid probate. Avoiding probate may be an advantage, but it will usually mean that most of the gifts and directions contained in a will are going to be ignored.
Some charitable gifts can be managed in such a way that the gift can be given in trust, to be transferred to one or more charities after the death of the donor or his successors. Such a gift can result in substantial income tax savings to the donor, while he or she (and possibly his or her successors) can retain the benefit of income from the assets transferred during the lifetime of the donor (and the successors).
This is managed through a "charitable remainder trust." The tax benefit, which is based upon a deductible charitable contribution made in the year that the trust is created, is computed using the value of the gift, the donor's (and any successors') age and life expectancy, and the income to be paid from the trust to the donor. For donors who wish to make substantial gifts, especially of property that would trigger large capital gains taxes if it was sold, a charitable remainder trust can be very advantageous. It also serves to remove assets from large estates which may be subject to estate taxes.
Most of my clients who have made substantial charitable gifts have done so because they have an interest in and familiarity with specific charitable organizations. They have often worked with the organization to target specific purposes for their contributions, and made "restricted gifts" with the understanding that the donation is to be used for a defined purpose. In general, this works best with charitable organizations with which the donor has a personal relationship. I have worked closely with many arts organizations and educational institutions to structure such donations.
A fairly recent development is the "donor advised fund." This involves a deductible gift to a charitable organization that creates a fund to be distributed in accordance with the future wishes of the donor, or people designated by the donor to make recommendations for gifts to be made in the future. This is a very useful tool for donors who wish to obtain a present charitable deduction, but who also wish to avoid making an immediate gift to a particular organization. It has become fairly common to combine the charitable remainder trust and the donor advised fund: the donor arranges for the transfer of the assets in trust, upon his or her death, to a donor advised fund to be managed by a friend or family member after the donor’s death. This kind of flexible arrangement can accomplish a variety of charitable purposes, while also giving a maximum income tax benefit to the donor.
There are many variables and considerations involved in all of these arrangements which are too numerous to include in this kind of summary, but I hope this information will provide a useful introduction to the subject of charitable donations and estate planning.
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