"My wife and I have a charity that has become really important to us. Although we aren’t wealthy and don’t have a large estate, we’d like to leave something for it in our will. We’re struggling to decide whether to leave a definitive dollar amount or a simple percentage because we want the majority of our assets to go to our kids. What are the pros and cons we should consider?"
Attorney Greg Bonney recommends using a percentage rather than a dollar amount in your will. That allows the amount given to charity to go up or down with the size of the estate, and prevents a situation from arising where there are no assets available for other beneficiaries once the charitable bequest is paid.
Other estate planning tools can also be used to support a charity. A nonprofit tax-exempt organization could be listed as a beneficiary or partial beneficiary on a life insurance policy or retirement account. "Since a tax-exempt organization does not pay income taxes, distributions from a retirement account could be made to a charity without tax," Bonney said.
"In addition, beneficiaries on life insurance policies or retirement accounts can be changed easily if you later change your mind."
An irrevocable charitable trust can also be created to benefit a charity, but you must be willing to permanently give up control of the assets used to fund the trust. You can design the trust to provide income to you for the rest of your life, with any amounts remaining paid to a charity or charities upon your death.
You can also design the trust to provide for periodic payments to a charity, with any amount remaining distributed to your heirs after your death. Depending on the trust terms, you will be allowed to take a charitable deduction when the trust is established and funded.
"There are many factors to consider and many different options available," Bonney said. "An attorney experienced with estate planning can help you plan the best way to meet your goals."
For more information on charitable giving, contact Greg Bonney at 608-784-5678.