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Charitable giving in estate plans

When discussing final wishes with a client, I routinely ask if they plan to make any gifts to charities upon their passing. For some people, charitable giving is not a consideration because of pressing family and financial needs. For others, however, they want to give, but are unsure what to do next.

Whatever your answer to this question might be, pause for a few minutes now and think of some causes or groups of people you would be proud to support. Think beyond the solicitations you get in the mail; the most persistent requests aren’t always the ones best suited to your wishes.

Most people don’t have to look back very far in their family tree to find a loved one impacted by Alzheimer’s, Parkinson’s, heart disease, or cancer. As part of your estate planning, you could help fund a local support group or give to a national organization providing medical research. Perhaps you have a great-grandchild who was recently placed on the autism spectrum or a grandchild who earned a scholarship at MSU or NDSU. You could help fund scholarships and other educational opportunities. A gift to your local church or other ministry can help provide vital spiritual guidance to the next generation. Maybe you’ve never missed a year at Hostfest; it has a related nonprofit organization. Our region is home to numerous deserving nonprofit organizations, many of which are quietly but effectively serving this area. Don’t feel limited to causes in which you have a direct link. Victims of domestic violence and sexual abuse receive crucial support from local nonprofits, as do those who are homeless or struggle with addiction.

The opportunities are abundant and diverse. Whether you plan to give during your lifetime or upon your passing, you should first research potential nonprofits to make sure they are reputable and ask a family member for help, if needed. Contact the organization directly to visit with a giving officer. Know the difference between giving for a one-time expense (such as operating costs or a special project) versus giving to an endowment fund (where your dollars cannot be spent but are used to generate income to be spent in the future).

You may wish to give to a community foundation, such as the Minot Area Community Foundation or St. Joseph’s Community Health Foundation, whose sizable endowments allow them to make grants and matching gifts to benefit the region. Community foundations may also hold donor advised funds and specific endowments for local nonprofits without the resources to manage their own endowments. (Full disclosure: the author is a board member of SJCHF.)

If you identify a charity you want to benefit, visit with your accountant and attorney about how and when the gift will be made. Together they can identify the pros and cons of making a gift during your lifetime, upon your passing, or both. They can also give options on how to make the gift. For example, adding a charitable gift to your estate planning could be as simple as adding a paragraph to your Will or updating a beneficiary designation. In some cases, a charitable trust or annuity makes sense given your specific goals and tax situation. Your professional advisors can guide you through determining whether one is appropriate given your situation.

If you decide to make a charitable gift during your lifetime, your accountant can keep you up to date on income tax incentives. Since the standardized deduction increased with the last round of federal income tax changes, many people are considering “bunching” two years’ worth of charitable gifts into one tax year in order to itemize deductions. Remember also that North Dakota has an income tax credit for certain gifts made to in-state charitable endowments. However, there have been recent regulatory changes at the federal level that may affect the overall impact of this deduction on your taxes.

If you are age 70¢ or older, consider making a qualified charitable distribution from your traditional IRA directly to a qualified charity in order to meet all or part of your annual required minimum distribution. If you follow the IRS rules, this distribution will be excluded from your income at tax time (which is better than paying the income tax and then taking a deduction). Additionally, you can also use a direct charitable distribution to make a charitable gift in an amount exceeding your RMD, up to $100,000. Again, visit with your accountant regarding the current tax rules, as they change frequently.

If you decide to make a gift upon your passing, the best course of action is to write this gift into your planning. Do not assume your children will follow your verbal instructions to make the gift. And remember that without written instructions in your planning, your personal representative or trustee cannot make a charitable gift unless all your children and beneficiaries agree. Your children may not all agree to make the gift, forcing some to feel obligated to make the entire gift from “their share.” Or your children may be influenced by their spouse to spend the money on something “more practical” with an “immediate benefit for the family” such as a new vehicle or a trip to Europe in your honor.

Numerous life circumstances can create stumbling blocks to carrying out your charitable wishes if they are not formally stated. What if your son is going through an empty-nest divorce? What if your daughter has a major health concern and is living in the nursing home when you pass away? This is more common as life expectancies rise and two generations within one family can be in the nursing home at the same time. For example, if your daughter receives an inheritance from you, but her own health care costs are very high, making a charitable gift from that inheritance may not be in her best interest if she needs to qualify for Medicaid in the next five years. Additionally, if one of your children passes away before you, it is even less likely that your grandchildren will know your wishes and follow through with them. These are all reasons why formally adding charitable gifts to your legal planning is the best course of action.

Charitable giving is a private and deeply personal decision. If you have ever considered making charitable giving a part of your estate plan, ask yourself: “If my children or other family members receive 90% of what I have, is that enough?” If you feel the answer to this question is “yes,” I encourage you to consider using the remaining 10% to be a source of hope and help to others in the community. What a rich tradition to start for future generations to follow.

(This article does not constitute legal advice. Each individual should consult his or her own attorney.)