Last week, I explored how clients could leave assets to their children and grandchildren. I explored the use of 529 plans, as well as the use of trusts. This week, I’ll explore other ways clients can choose to leave a legacy.

If clients want to leave a financial legacy, other than to their family, they are typically considering charitable options. There are lots of ways to leave assets to charity. But, the first step is choosing which charity, i.e., “to whom” do they want to leave the asset? In other words, do they wish to leave the assets to their own private foundation or do they wish to leave assets to an established charity?

Once the identity of the charity is chosen, clients can leave assets to charity during their life or at death. So, the next question to ask is “when.” Of course, if they leave money during lifetime, they get an income tax deduction which they would not get at death. This can enable the client to gift with a lower after-tax cost. Either way, the assets will not be included in their taxable estate for estate tax purposes.

The next question is “what.” What assets do the clients wish to leave to the selected charity? If they are leaving the asset during lifetime, a charitable remainder trust may be a great option for highly appreciated assets which they wish to liquidate. Also, appreciated assets can be a good lifetime gift, as long as the client will be getting a deduction for the full fair market value of the asset. If the asset will not be left until death, assets which comprise Income in Respect to a Decedent (“IRD”), like an IRA, make attractive assets to leave to charity. IRD assets do not get a step-up in basis at the death of the taxpayer. But, a charity will not pay tax on the IRD asset, while a non-charitable beneficiary would pay tax. Thus, an IRD asset is worth more to a charity than it is to a non-charitable beneficiary.

The final question is “how.” Should the assets be given, outright or in a trust? If the assets will be left in trust, what sort of trust should be used; a CRAT, a CRUT, a CLAT, a CLUT, etc.? A trust may allow for continued control by the family.

A client can leave or build a charitable legacy in a variety of ways. There is not just one “right” way to leave or build a charitable legacy. As we’ve seen, you can help your client maximize the financial benefit of their charitable act, depending upon the asset and timing of the donation. Regardless of how the legacy is left or built, the client can know that they are truly making a difference, long after their decision is made.

Stephen C. Hartnett, J.D., LL.M.
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