Retirement Planning

Charitable Giving through Estate Planning

Published by Bob Gustafson

Charitable Giving through Estate Planning

Charities rely on donations and for many donors, charitable giving is important to them. Many include charitable donations as part of their estate planning process. So, whether you want to donate to an organization or cause that you are passionate about or help your school or university, there are steps you can take to ensure your money actually gets to them.

What is estate planning?

Estate planning is one of the most important steps a person should take to ensure the management and distribution of their property is handled according to their wishes.

According to Investopedia, estate planning is the preparation of tasks that serve to manage an individual’s asset base in the event of their incapacitation or death. The planning includes the bequest of assets to heirs and the settlement of estate taxes.

Leaving money to your charities through your estate plan

When setting up estate plans, you can target some of your assets towards the non-profit organizations that you would like to help.

However, often times, as the estate planner gets older, their heirs become involved. Once the heirs review the estate plan, they realize some of “their” money is being designated to a charity. At this point, the heirs put pressure on the planner. The heirs convince the planner to take out the charitable giving so they are designated that money instead.

If you’re someone who is adamant that you want to include charitable giving as part of your estate plan, there are some strategies you can employ to protect the donations.

Ways to Protect Charitable Giving in Your Estate Plan

If you want to ensure your money is given to your favorite charity after you’ve passed away, there are some options available to you.

Life Insurance Policy

One strategy is to use your life insurance policy. Quite a few people choose this option. You simply make your charity of choice a beneficiary of your life insurance policy. And to offer further protection, you can make the charity an irrevocable beneficiary.

Donor Advised Funds

Some people set up donor advised funds. This type of fund is a charitable giving where you donate a nonrefundable amount, either in cash or securities, to a non-profit of your choice. This fund is administered by a public charity that allows you to direct how your funds can be used. The purpose of this fund is to manage charitable donations on behalf of organizations, families, or individuals.

Bank Account

Another option is to create a separate account just for the charity. You can add to it throughout your lifetime. Then, the designated charity will directly receive all of the money from that account when you pass. If you want to ensure the money will actually go to the charity, you should name the charity as a TOD (transfer on death). But, even this can be reversed by heirs if they get access to the estate plan before you pass.

While we’re on this topic, it’s important to note the flip side of this situation. If you work for a non-profit, it’s important to educate your donors about some of these options. Otherwise, the estate planners’ donation intentions may never make it to you.

Finally, as always, when deciding the best strategy based on your unique situation, it’s important to contact a professional. An expert can help you decide the best option to choose based on your personal preferences.

These are some options you should investigate further to see which one will works best for you. Listen to our podcast to hear more.