Planning
Philanthropy plays a significant role in many families' trust planning, allowing you to give back to causes and organizations that reflect your values. Whether it’s supporting religious organizations, charitable causes, or non-profits, your trust can be structured to ensure that your legacy of giving continues long after you’re gone. Let’s explore some ways you can incorporate charitable donations and philanthropy into your trust, as well as more structured options like charitable trusts.
1. Charitable Donations from the Trust
If charitable giving is important to you, you can allocate a portion of your trust's assets to support specific organizations. Some considerations include:
Which organizations: Would you like to support religious institutions (e.g., your church), educational programs, healthcare initiatives, or global non-profits? Identify the causes that are most meaningful to you.
How much: How much of your estate are you comfortable designating for charitable donations? You can choose a fixed amount, a percentage of the trust’s assets, or donate any remaining balance after other obligations are met.
Timing of the gift: Should donations be made upon your passing, or do you want your trust to distribute charitable gifts over time (e.g., annual donations for a number of years)?
Consider This: You might designate 10% of your trust’s assets to your favorite charity or religious institution, ensuring that a portion of your wealth is dedicated to causes you care about. Alternatively, you can have your trustee make annual donations to a charity over a specific period of time, ensuring sustained support.
2. Setting Up a Charitable Trust
A charitable trust is a more formal structure that can help you leave a lasting legacy of giving. Two common types of charitable trusts are Charitable Remainder Trusts (CRTs) and Charitable Lead Trusts (CLTs):
Charitable Remainder Trust (CRT): This trust provides income to you or your beneficiaries for a specified period, after which the remaining assets are transferred to a charitable organization.
Pros: Provides income for your beneficiaries while also ensuring that a charitable organization benefits in the future. Offers potential tax advantages.
Cons: Less immediate impact on the charity, as they will only receive the assets after the trust’s term ends.
Charitable Lead Trust (CLT): This trust provides income to a charity for a certain period, and once that period ends, the remaining assets pass to your beneficiaries.
Pros: The charity benefits immediately, while your family can still inherit assets after the trust’s term.
Cons: The amount left for your beneficiaries can be reduced if the charitable donations over the term are significant.
Something to Think About: You could set up a Charitable Remainder Trust that provides for your children’s financial needs during their lifetime, with the remainder going to your chosen charity after their passing. This ensures your family is cared for while also fulfilling your philanthropic goals.
3. Incorporating Philanthropy into Your Estate Plan
If you’re not ready to make a firm decision on charitable giving now, you can still include provisions in your estate plan to give your trustee flexibility. This allows philanthropy to remain an option as your values and circumstances evolve. Some options to consider:
Trustee discretion: You could give your trustee the discretion to make charitable donations on your behalf, based on guidelines you set in the trust. For example, you could specify certain types of causes (education, healthcare, environmental, etc.) but allow the trustee to choose the actual charities.
Future charitable trusts: If you’re not ready to set up a charitable trust now, you can include instructions for your trustee to create one at a later date. This could be based on the financial status of your estate at the time of your passing or triggered by certain events (e.g., after your children reach a certain age or after a major asset is sold).
Scenario: You may want to leave flexibility for your trustee to donate a portion of your estate to charitable causes that align with your values, without specifying an exact charity now. You could leave guidance like “distribute 10% of my estate to charitable organizations focused on educational development or healthcare initiatives.”
4. Other Philanthropic Considerations
Donating Appreciated Assets: Consider donating appreciated assets like stocks or real estate. This can reduce the capital gains tax burden on your estate while still providing significant value to a charitable cause.
Naming Rights: Some organizations offer naming rights for significant donations. Do you want part of your legacy to be recognized publicly, such as having a building or scholarship named in your honor?
Family Foundation: If your family is heavily involved in philanthropy, you might consider establishing a family foundation as part of your trust. This can allow future generations to continue making charitable donations while honoring your legacy of giving.
Scenario: Balancing Philanthropy and Family Inheritance
Imagine you’re a physician named Dr. Lisa Reynolds. Throughout your career, you’ve been deeply involved with a non-profit organization called "Healthcare for All," which provides medical care to underserved communities. This organization has always been close to your heart because you’ve seen firsthand how it changes lives. You’ve volunteered with them for over a decade, donated regularly, and even helped organize fundraisers. Now, as you’re planning your estate, you feel strongly that you want to support Healthcare for All in a meaningful way after you’re gone.
At the same time, you want to ensure that the majority of your wealth is passed down to your family. You have two adult children, Mia and Jacob, who you want to ensure are well taken care of. While philanthropy is important to you, your primary goal is to make sure your children have financial stability for their futures.
You begin to think about how to balance your philanthropic passion with your responsibility to your family.
Reflection
In this situation, Dr. Reynolds has several options for structuring her giving in a way that honors Healthcare for All without compromising her children’s inheritance:
Charitable Remainder Trust (CRT): Dr. Reynolds could set up a Charitable Remainder Trust, where a portion of her estate generates income for Mia and Jacob during their lifetimes. After they pass, the remaining assets in the trust go to Healthcare for All. This allows her to provide for her children while ensuring the organization she loves eventually benefits from her estate.
Fixed Donation: She might decide to allocate a specific amount or percentage of her estate directly to Healthcare for All. For example, she could set aside 10% of her estate for the charity and leave the remaining 90% to her children. This ensures that Healthcare for All receives a substantial donation without significantly reducing what Mia and Jacob inherit.
Donations Over Time: Dr. Reynolds could also direct her trustee to make annual donations from the trust to Healthcare for All after her passing. This provides ongoing support to the organization and allows her family to benefit from the majority of her estate in the meantime.
Memorial Fund or Scholarship: Dr. Reynolds could set up a scholarship or memorial fund in her name, supporting future medical students or healthcare professionals through Healthcare for All. This would allow her to leave a lasting legacy while still leaving the bulk of her estate to Mia and Jacob.
Questions to Consider
When thinking about your own philanthropic legacy, ask yourself:
Is there an organization that has played an important role in your life or reflects your values? How would you like to support that cause after you’re gone?
What percentage of your estate feels right to donate without compromising your family’s financial security?
Would a Charitable Remainder Trust allow you to balance both your family’s inheritance and your philanthropic goals?
Would you like your trustee to make ongoing donations from your trust over time, rather than a single lump sum?
Would establishing a scholarship or memorial fund align with your values and create a lasting legacy while still caring for your family?