By Scott Blakesley
Part of the process for effective management of wealth is how to apply the assets (or the value they represent) to accomplish the purposes that best suit your situation. One important aspect of that planning is to determine how best to allocate resources to charitable causes that you may want to support.
If you have not considered this subject recently, then it is probably time that you did so. That is not to say that everyone should allocate assets to charity as part of the wealth management and planning process, but it should be a considered choice that you make to either do so or not.
Last month’s election results made it clear that we cannot expect “business as usual” in the areas of transfer taxes, income taxes or the respective benefits and options for allocating assets for charitable purposes during lifetime or after death. In my experience, I have observed that people don’t usually make decisions about charitable gifts or bequests solely based on the available estate or income tax deductions. However, the tax considerations are often what motivates a person to have those important meetings with financial advisers and estate planning attorneys, which often lead to the careful consideration of how charities should or should not fit into the overall plan.
If the estate tax should be eliminated entirely, or for a majority of U.S. citizens whose assets currently are less than the available estate tax exemptions, estate tax considerations will no longer be a relevant factor in the wealth planning process. This will make it more important than ever for people to consider the allocation of their resources between family and charity, so that the appropriate “legacy” result is achieved from the planning.
As you consider the options available, the most important factors are usually the types of charitable activities and services provided by the organizations that you would support. You should consider the charitable causes that you currently support and determine the extent to which you would want that support to continue after your death. Various options are available for you to make arrangements for funds to continue to support your favorite charitable causes long after you are gone. Consult your estate planning attorney or other financial adviser if you need further assistance with these options.
It's always important to consider the types of charitable activities and services provided by the organizations that you would support.
However, it is also important to examine the manner in which charities carry on their activities and use the funds they receive, including the portion of their annual budgets devoted to administrative expenses. A high percentage of administrative expenses as compared to total budget should not always be considered as a negative for the charities you want to support. For example, in the case of charities whose primary activity is to provide services, it is not unusual for a significant portion of the annual budget to be allocated to salaries and similar expenses that are essential to the process of providing those services. Although there are various resources available to examine these factors (e.g. Guidestar.com and charitynavigator.com), it is usually best to discuss these matters directly with the charities you want to support, so you can personally feel comfortable that your donations (both current and future) will be applied to accomplish the charitable purposes you intend.
When talking with the charities you are considering, don’t hesitate to ask difficult questions about how your donations will be used, or to inquire regarding other aspects of how they carry out their charitable mission. There are countless options for your charitable dollars, and you should only donate to those charities with which you feel most comfortable. If the charity has facilities they use for their mission, you will probably want to schedule a visit so you can see for yourself how the donations are being used.
You may, at times, want to provide financial support to a certain charity but you are not totally comfortable with the internal procedures of the charity for handling or investing the money received. In this situation you can establish a charitable fund at a community found-ation or various financial institutions that manage charitable funds, indicating that the funds are to be used solely for the support of the specific charity you name, but that the management and investment of those funds will be handled by the foundation or financial institution.
There are also several types of chari-table trusts that you can establish for the express benefit of designated charities (or for charitable purposes in general) but which assign the responsibility for management and investment of the assets to specific individuals or financial institutions as trustee.
Within these arrangements, you can provide as much or as little specificity as suits your purposes, but you should also be sure to allow for sufficient flexibility to allow the trustee to deal with unanticipated future circumstance.
Scott Blakesley is a partner with the Spencer Fane law firm in Kansas City.
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