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Many individuals have charitable intent that they would
like to incorporate into their estate plans, but aren’t
quite sure how to accomplish that. Today I’m going to
outline four main methods of including charities in your estate
Outright Bequests To The Charities
Outright bequests to the charities are the simplest and most
straightforward of these avenues. Here you designate what
charities receive how much from your estate. If you want the
money to be slated for a certain activity within that charity (e.g .
your favorite university for the purpose of providing scholarships), you could so des-
ignate in your will or trust.
Here, you are relying on the charities to abide by your wishes. They can con-
sume the principal for the stated purposes, or if there is no stated purpose then for
their general cause.
The next avenue would be a public foundation, such as The Southwest Florida
Community Foundation (SWFCF), United Way or a host of other foundations that
serve to achieve charitable objectives.
Here, you would name the public foundation in your trust, and describe the
charitable causes that you would like for your bequest to satisfy. The public founda-
tion typically invests your money pooled with their other funds, and the proportion-
ate amount of income generated by your fund would be distributed annually to the
charitable causes you set forth.
Because it is a public foundation, meaning that a majority of its assets and rev-
enues are not from one or just a few individuals, the more liberal tax laws governing
public foundations apply. So long as your bequests and directions meet the Internal
Revenue Code standards and are consistent with the bylaws and governing docu-
ments of the public foundation, almost all of the monies you slated for your chari-
table causes will benefit those causes annually following your demise.
The public foundation does have administrative expenses that are satisfied from
its general pooled income. You can speak to them about how much of your money
will one day satisfy your charitable intent and how much might be expected to cover
the public foundation’s overhead.
A third avenue to achieve your charitable goals is to build a private foundation
inside of your estate plan. The private foundation would work very similarly to a
public foundation mentioned above, but must comply with a plethora of IRS rules
and regulations. The IRS doesn’t pass out tax exemption certificates without impos-
ing a lot of rules. Since private foundations are, by definition, usually limited to
one family, the IRS is worried that the private foundation will be a front to achieve
charitable deductions without actually benefitting charity.
Therefore, the drafting of such a foundation is a detail oriented exercise. Upon
your passing, the foundation is typically established by the trustee of your trust, and
must distribute a minimum of 5 percent of the trust value annually for the founda-
tion’s charitable purposes. Moreover, a 2 percent excise tax on net investment
income is levied, although there are exceptions to that rule which is beyond the
scope of this discussion.
Salaries that your trustee(s) take are highly scrutinized (since they are not a chari-
table function) and are limited under IRS rules. Annual tax returns (Form 990PF)
disclosing not only the income but the activities of the foundation are required.
The benefit of a private foundation is that those who you select to run it will
ultimately ensure that your charitable wishes are carried out the way that you want
them carried out. Further, aside from the excise tax and administrative expenses,
your charitable bequests will be used to meet your charitable purposes.
Charitable Remainder Trust
The last method I will discuss here is the Charitable Remainder Trust (CRT).
Here, you name a trustee that will manage the investments and make the distribu-
tions. Typically, you name a family member or other person to receive an annual
income distribution, which is either calculated as a fixed annuity based upon a per-
centage of the original contribution to the trust, or a unitrust percentage which is a
fixed percentage recalculated annually based upon the principal balance of the trust.
Here, the non-charitable recipient receives the income interest either for a term
of years or for their lifetime. Upon their passing, the charities named in the trust
receive the balance.
There are other methods besides these such as charitable lead trusts and gift
annuities. Discussing the specifics of your charitable intent and how that matches
the various attributes of each method can help lead you to the best fit for you and
©2015 Craig R. Hersch. Learn more at www.sbshlaw.com.
Four Different Methods Of
Charitable Giving From Your Estate
by Craig R. Hersch, Florida Bar Board Certified
Wills, Trusts & Estates Attorney; CPA
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