Leaving Money in a Charitable Trust or Will (Part 1)

People often wish to leave funds to charities as part of their estate planning.

You may leave money or assets to a non-profit organization by means of a charitable trust or will. People leave assets to all types of nonprofits like hospitals, animal shelters, religious organizations, etc.

Regardless of the type of charity, there are a number of good reasons to leave assets to a non-profit organization:

1. It is a tax write off. If you leave assets to a charity, the fiduciary of your estate may claim the amount of the bequest as a deduction on your estate tax return. If you pass away with a taxable estate (in 2016 Federal Estate Tax exemption is $5,450,000; NYS $3,125,000 on or before 31/31/2016 and $4,187,500 from 4/1/16 to 3/31/17), it will be taxed. But, if you leave assets to a charity, then your fiduciary can take a deduction for the amount of the charitable gift, which will reduce your taxable estate. In some cases, a taxable estate can be reduced to the point that it avoids an estate tax liability.
2. You may achieve recognition. If you contact the charity before your death and let them know of your intentions, the charity may express its gratitude, which can be rewarding;
3. You can control how your gift is used. When you leave funds to a charity, the specific purpose of the money can stated in your will or trust.  

Do your due diligence. If a charitable deduction is part of your strategy, it is imperative to make sure that it is made to a qualified charity. Before creating a trust or naming a charity, ask for verification that donations to that charity are eligible for tax deductions. One of the ways you can do this is by contacting the attorney general of your state, or the state where the charity is domiciled, to see if the charity meets the specific requirements.

Try to avoid percentages and other problems.

People often leave a percentage of their estate or a trust. In New York State, if you designate a percentage of your residuary estate instead of dollar amount or bequest, your fiduciary will need to provide an accounting to the New York State Attorney General, who will review the accounting and approve the actions of the the fiduciary in the form of a “No Objection” letter. However, if the Attorney General takes issue with an item in the accounting, this could create issues for your fiduciary and possibly result in additional expense and delay in the administration of your estate. Unless there are specific reasons, it may make more sense to decide on a dollar amount. You should speak with your attorney regarding any gifts made in your will or trust to a charity.

For example: If you estimate your estate will be worth $10 million, and you want to give a gift in your will to a charity that will equate to about 1% of your residuary, then you should consider leaving a specific dollar amount of $100,000. This way the actions of the fiduciary of your estate would not be subject to the Attorney General’s review and approval, and you would receive the desired estate tax deduction.  

Leaving a part of your estate to a worthwhile charity can be an emotionally rewarding experience. You should speak with an experienced estate planning attorney in order to make sure you are taking the proper precautions to maximize the benefits to your estate, minimize the costs involved, and most importantly ensure that your wishes are honored.