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You certainly can make philanthropic gifts in your Will; however, there are several disadvantages to relying on your Will for those gifts. Gifts made in a Will do not allow you to retain much control over how the gift is used by the beneficiary. Consider a gift made in your Will to be a “no strings attached” gift. That means that gifting in your Will is not an ideal option if you want to have some input or control regarding how the gift is used by the recipient. In addition, if you wish to make any changes to the gifts you make in your Will it is usually necessary to revoke your Will and execute a new one which can be cumbersome if you add or delete charities with any regularity. Finally, you may miss out on any potential tax benefits you might get from philanthropic gifts if they are made in your Will. On the contrary, because the assets are still part of your estate at the time of your death, your estate pay incur estate taxes based on the value of the assets.
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A trust can offer several advantages over a Will for philanthropic gifting. For example, a trust allows you to retain a significant amount of control over how the recipient uses the assets you gift through the trust terms you create as the Settlor of the trust. In addition, when you create a trust, you choose a Trustee who is responsible for managing the trust and protecting the trust assets. Appointing the right Trustee provides additional reassurance that the assets you gift will continue to grow in value and continue to further your philanthropic goals.
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A charitable lead trust is structured so that assets from the trust are distributed to at least one charitable beneficiary for a specified period first. At the end of that time, the assets remaining in the trust are distributed to at least one non-charitable beneficiary. For example, imagine that you established a charitable lead trust and transferred $5 million into the trust. The terms might direct distributions in the amount of $250,000 to be made to your chosen charity each year for ten years. The terms might further dictate that at the end of that 10-year period the assets remaining in the trust are to be distributed to your adult children.
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A charitable remainder trust works just like a charitable lead trust, but in reverse. Trust assets are first distributed to at least one non-charitable beneficiary for a specified period with the remainder assets being distributed to at least one charitable beneficiary at the end of the period. Using that same $5 million, in a charitable remainder trust you might create terms that direct distributions of $100,000 to each of your two adult children for ten years. After ten years, the assets remaining in the trust would be distributed to your named charitable beneficiary (or beneficiaries). Keep in mind that the trust should be earning interest during the ten-year period of initial distributions as well.
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When you create a trust, you can appoint anyone you choose to be the Trustee. Given the complex nature of philanthropic trusts, however, you may wish to consider appointing a professional Trustee. One of the most common mistakes settlors make is appointing a family member or close friend as their Trustee without considering whether the individual is well suited for the position. Given the duties and responsibilities of a Trustee, you should appoint someone who has more than a rudimentary understanding of financial and legal concepts. This is often even more important when charitable beneficiaries are involved. You may wish to consider appointing a professional Trustee.
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A donor advised fund or annuity is another excellent way to incorporate philanthropy in your estate plan. First you transfer gifted assets into the fund. You will no longer own the assets; however, you will be able to direct how the funds are used. If you gift to an annuity, you will also be able to choose the beneficiary who will receive the benefits from the annuity.
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For the right situation, a family foundation is a great way to include philanthropy in your estate plan and pass it on to future generations. A family foundation is best used when you have considerable assets to gift and the time to run the foundation once it is established. The benefits of using a foundation as your charitable gifting vehicle are numerous though, starting with the amount of control you will retain over how your gifts are used. In addition, creating a charitable foundation makes it much easier to involve your children and/or grandchildren in your philanthropic endeavors. Running a foundation requires a considerable amount of your time and attention while you are alive though, particularly if you plan to grow the foundation by soliciting gifts from other donors as well. One unique benefit of a family foundation is that future generations can continue your philanthropic work through the foundation.
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Contact Us
If you have additional questions, contact an experienced Indianapolis, Indiana estate planning attorney at Frank & Kraft. by calling (317) 684-1100 to schedule your appointment today.
