Bar News - March 19, 2014
Elder, Estate Planning & Probate Law: Charitable Estate Planning 101: The Basics
By: Sarah Paris
Charitable estate planning, planned giving or gift planning are all terms that have come to describe the same thing. Recently, there has been an increase in the use of the term “planned giving,” as small and mid-sized charities have begun to realize the benefits of marketing to donors for future gifts; the phrase encompasses all methods of including an organization as a beneficiary of a client’s estate plan.
Tips and Hazards
When establishing benefits for a charitable organization during the estate planning process, here are a few things to keep in mind.
Name. Name the charity carefully and include as many details as possible in the estate planning instrument to avoid any confusion about the charitable beneficiary. Wherever possible, include the full name of the organization, its address, phone number, website, and tax identification number.
Medicaid. Beware of Medicaid issues when providing gifts during the life of the client. Effective July 2, 2013, NH RSA 151-E:19 allows for nursing homes to recoup costs specifically from the beneficiary of a gift that resulted in the disqualification of a person from Medicaid benefits. If your client may require Medicaid, review this statute carefully before making any transfers to a charitable organization.
Public Acknowledgment. Discuss with your client whether they are looking to have their charitable gift publicly acknowledged by the organization to which they are giving. With more planned giving programs being implemented by charitable organizations, clients have more options for how their gifts are used and whether they are recognized or remain anonymous.
Beneficiary Designations. Be sure your client has updated their beneficiary designations on any non-probate assets to appropriately reflect the estate plan you have discussed. Just like improperly funding a trust, failure to change beneficiary designations properly will lead to a failure in your client’s desired estate plan.
There are many things to consider when developing an appropriate estate plan for a client, including possible charitable beneficiaries. Every client, wealthy or poor, could potentially leave something to a charitable organization.
Oftentimes, a discussion about leaving behind a chartiable gift begins within the context of selecting alternate beneficiaries. Attorneys often are the harbingers of disaster and must consider the awful questions, such as, “What if your entire family were to die in a plane crash?” It’s not uncommon to ask a client who has run out of alternate beneficiaries whether there might be some cause or organization they would like to support.
In the case of a wealthy client, he or she likely is already considering charitable organizations, not only for the philanthropic benefits, but also for the obvious tax benefits that can be reaped during the life of the client, as well as after, depending on the estate planning vehicle used.
Choosing a charity
There are many considerations when picking a charitable organization and some important things to remember during the drafting process.
Some clients come in with a charity or list of charities they already support or would like to support after they pass. A good first step is to research the charitable organization and see if it already has a planned giving program. In recent years, many smaller nonprofits have set up these programs, which lay out the different types of gifts that work for certain types of donors.
A good example of this can be found on the New Hampshire Public Radio website, www.nhpr.org, in the support section. NHPR gives a great breakdown for potential donors of different types of gifts and even provides a link for each type of gift to further describe for the donor how it works.
Usually, if an organization has created a planned giving program, it is established enough to be considered a safe bet as a beneficiary. You may need to steer a client away from a charity that is relatively new and not well established, as there is the possibility that the charity will no longer exist at the time of your client’s death. Of course, the determining factors when choosing a charity beneficiary are your client’s wishes and personal interests.
Charitable estate planning vehicles
The options for charitable estate planning vehicles are endlesss and as varied as the client. The choices range from the simplest and most common form of giving – a bequest made out in a will – to a variety of complex trust options.
One option that is often overlooked is a client’s retirement assets. Depending on your client’s overall estate value, leaving retirement assets to a charitable organization can provide great tax benefits, while freeing up other property for the client’s personal beneficiaries.
For many clients, a simple bequest makes sense as they have no tax concerns and are just looking to support a favored organization. If a client is looking for an income stream and tax benefits during their lifetime, then some options available include charitable remainder annuity trusts, charitable remainder unitrusts, and charitable gift annuities.
For wealthier clients looking for control over their gifting, a private foundation may be a good choice. Generally, the choice of which estate planning vehicle to use in charitable estate planning will be determined by the client’s level of gift, overall estate value and, of course, the client’s personal choices.
Sarah Paris is an attorney practicing in the areas of estate planning and family law at the Law Office of Katherine J. Morneau in Nashua and a member of the Elder Law and Estate Planning Section of the NH Bar.