Philanthropy: Guiding Your Clients Towards a Lasting Legacy

Hardly a week goes by without news of yet another wealthy person giving away a large sum of money to a college, university, hospital, medical research facility, cultural institution, or any one of dozens of other institutions or causes.

The very wealthy are giving gifts at an astounding rate. The top five Forbes 400 Members including Warren Buffet, Stephen Mandel, and Mark Zuckerberg, gifted a total of $3.7 billion in 2010 and 2011.

Clearly, many wealthy individuals view their legacy as more than the accumulation of financial assets. They want to be remembered for their charitable giving, for helping others, and to make an impact on society.

Of course, not just the super-rich practice philanthropy. Many people give meaningful gifts of all sizes or volunteer tirelessly for all sorts of causes.

So, what about you and your clients? Certainly many of your clients have an affinity to a cause or an institution and certainly some have thought about philanthropy. But perhaps they’re not aware of their options for giving, or of the tax advantages of doing so.
Here’s a handy list of ways for you or your clients to give back:

In kind. You or your clients may contribute your time or expertise to a charitable organization. While you cannot take a charitable deduction, but you get direct experience with the charity and how it uses its resources. That can be invaluable in determining whether it is a good use of your time and money later on.

Directly. This is the simplest form of giving, especially when there are no strings attached to the gift. This can be done during life, or a brief clause in a Will or Trust can suffice. This may be a good option for any client, especially for those with smaller gifts to bestow.

Retirement account gifting. A client can name a charity as a beneficiary to his or her IRA or employer-sponsored retirement plan. Of course, certain rules such as spousal approval often apply, so be sure to guide your clients accordingly. In 2011, individuals over 70 ½ can even do a “charitable rollover” of $100,000. This is a directly charitable contribution of the IRA during life. This can be advantageous because it avoids limits on income tax deductions, etc. But, hurry, the “charitable rollover” is set to expire after this year.
A charitable lead trust. This trust pays income to a charity chosen by the giver for a certain term. It may be set up during life or at death. After that term, the trust principal passes to family Members or other beneficiaries.

A charitable remainder trust. This is the reverse of a lead trust because trust income is payable initially to the grantor or other non-charitable beneficiaries for the term of the trust. After that, the principal goes to the donor’s chosen charity. Again, this may be set up during life or at death.

Set up a private foundation. Individuals can make tax-deductible donations to a private foundation. Foundations can be trusts or non-profit corporations. Again, donations may be made during life or at death. For large sums, private foundations provide greater control for the donor but have significantly greater reporting requirements, etc.

Stephen C. Hartnett, J.D., LL.M. (Tax)
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (800) 846-1555
www.aaepa.com