How to Incorporate Philanthropy into Your Estate Planning

How to Incorporate Philanthropy into Your Estate Planning


Through estate planning, people can leverage their wealth to serve a variety of philanthropic causes, both during their lifetime and beyond. While philanthropy does not always become part of the estate planning process, it can help families establish a legacy and perhaps even drive connections between different generations. When you decide you want to include philanthropic goals in your estate planning, it’s best to discuss this decision and your specific goals with a wealth advisor or an attorney experienced in this field. Doing so will help you understand the available options and the potential issues associated with each of them. However, even before that point, you should have a clear idea of the causes or organizations you wish to support, and the resources you want to contribute.


The First Step to Incorporating Philanthropy into Estate Planning

The first step in creating a legacy involves identifying the causes that are important to you and your family. While you can choose more than one charity to support, keep in mind that identifying more causes could impact how long your support will last, or the overall amount of any future donations. If you’ve been actively engaged with philanthropy throughout your life, try looking to the past for ideas. Some people are inspired by recent events to choose new causes to support in their estate plans, while others prefer to continue supporting the same causes they always have.

If you have trouble narrowing your focus, ask yourself what issues in your community concern you and what you worry about for future generations. In addition, it’s important to consider your personal legacy. How do you want to be remembered? The answer to any of these questions can point you down the right path to make a choice. You may also want to involve your loved ones in the conversation and think critically about your personal values, since charitable efforts should align with these principles. Some people envision creating several generations of philanthropy through estate planning, which is a process that must involve the entire family.


The Question of Which Assets to Give to Charitable Causes

Attorneys and wealth advisors will want to know what exactly you wish to give in the future once they understand which charities you wish to support. This discussion takes the idea out of the abstract and starts to bring the technicalities of estate planning into focus. Cash donations are accepted by just about every charitable cause, but many organizations can actually accept physical and financial assets, which opens up new options for philanthropists. Commonly, people leave artwork, real estate, privately-held securities, and other non-cash assets to charitable causes.

The decision of which assets to give depends in part on the types of donations the chosen organizations can accept. Highly appreciated assets often provide significant tax savings, but smaller organizations often do not know how to make the most of anything aside from cash or stock donations. In this case, you may want to determine if any other organizations are working in the same field. Donor-advised funds and community foundations frequently have experience accepting assets that are not liquid and can serve as excellent guides in the process of making complex donations.


The Choice of How Exactly to Plan for Future Giving

There are a number of different options when it comes to transferring assets to charities. Some people simply include charitable gifts in their will, but this strategy ignores a number of tax benefits that other vehicles can provide. Both community foundations and donor-advised funds can streamline giving, but the downside of these strategies is that donors often have to give up a decent amount of control in terms of who actually benefits from their gift in the long run. Some vehicles that minimize tax implications while allowing donors to retain more control include charitable lead trusts, private foundations, and charitable remainder trusts. During this step of the process, an attorney or similar professional can provide insight into which vehicles would provide the greatest advantages for a given situation.

A charitable lead trust allows you to donate to charities during your lifetime, for a period of time you specify—for example, until your death or a certain number of years after. At the end of this period, the remainder of assets are divided among the beneficiaries you name.

In contrast, a charitable remainder trust makes it possible for you to draw money for yourself from the collection of assets or to give funds away to various charities during your lifetime. After your death, the remainder of assets go directly to the charities. If you have children, you may also want to think about including a provision in estate documents that allows them to disclaim all or part of their inheritance in favor of charity.


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