Clients will often say, “I would like to leave something for charity.” As advisors, we say “Go for it! Your family won’t miss a few percent from your estate.” However, many individuals have not given thought to the cause or organization they would like to support with charitable giving and how much of a gift to give.

To start, clients must address a few questions:

1. Why do I want to leave a gift?
2. What area of philanthropy do I want to focus on? Is there a specific organization that I have in mind? Has a non-profit organization been especially helpful in my life, and do I want to assist in supporting others the way they helped me?
3. How much am I willing to give? How much charitable giving should be made to avoid paying income or estate taxes?

Once these questions are answered, the rest of the process, namely crafting a plan and choosing the right tools, can be straightforward and fun for both the client and their advisors.

Real-World Case Study

Mrs. Smith is a woman in her 70s who lives in Massachusetts and is updating her estate plan. When she was young, her father told her how a relative had unexpectedly fallen upon hard times and ended up in a homeless shelter. This relative eventually got his life back on track and ended up being a father figure for her own father. As such, Mrs. Smith would like to make a gift to a charity that assists the homeless in Boston.

A simple search for, and review of the organizations’ websites will generally provide an overview of their work. Additionally, individuals should know that many nonprofit organizations have fundraising and development departments that are available to answer questions about making a gift. Oftentimes, the organizations will invite potential donors for a meeting or a tour of their facilities.

In performing due diligence on each organization, Mrs. Smith asks:

“How many people do you serve every week, month and year?”

“How long has your executive director been serving?”

“Who are your largest donors?”

“Can I direct my gift to a specific program within your organization?”

After a phone call with the development staff of a large shelter, Mrs. Smith learns that it has solid leadership, a strong financial foundation, and serves homeless men and women throughout Greater Boston. She also visits GuideStar’s website for additional facts about the organization. GuideStar accounts are free, and allow individuals to look at an organization’s Form 990 – a financial document that is submitted by the charity to the IRS on an annual basis.

In her next estate planning meeting, Mrs. Smith and her attorney talk about her wishes and the different approaches that are available to use in her estate plan to provide funding to charities. The charitable giving methods they discuss include:

Bequest – In a trust or will, an individual can direct a gift of a specific amount or a percentage of his or her estate to a non-profit organization.

Private Foundation – A client could establish a private foundation that would allow the next generation to have an active role in distributing assets to non-profit organizations. This option is customarily used in the transfer of significant wealth.

Charitable Remainder Trust – This trust provides distributions to the grantors or other beneficiaries now and leaves what is left of the trust (the “remainder”) at the death of the grantor (or at the end of a term of years) to a charity or multiple charities. See Planning with Charitable Trusts -Win/Win.

Mrs. Smith and her attorney decide to place a clause in her revocable trust indicating that a gift of a certain amount, not to exceed X% of her estate (to ensure her family still receives most of the trust) is to be distributed to the homeless shelter upon her death. By giving such a gift at death, it reduces the value of her taxable estate below the state and federal estate tax exemption, thereby eliminating the estate tax payable by her estate.

A Twist to the Story

What if Mrs. Smith’s estate was not subject to estate tax to begin with? That’s fine: She can instead require her heirs to make the gift personally so that they’ll get the deduction on their income taxes! (Otherwise the deduction could go to waste.)

As with all estate planning, it is worthwhile to consult with the estate planning attorney and inform them of the ultimate goals. Regarding charitable giving, individuals should remember that their attorneys have multiple ways to draft their legal documents so that the clients and the charities benefit in the most efficient and impactful manner.