While making charitable gifts using your Will may be the simplest way to incorporate philanthropy into your estate plan, it may not be the best Gifts made using a Will do not allow you to retain any control over how the gift is used by the beneficiary. Once a gift is made in your Will the funds or assets gifted become the property of the recipient with no strings attached. If it matters to you how your assets are used by the charity, gifting in your Will is not an ideal option. 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. Adding a charitable gift, therefore, would require you to execute a new Will which is rather cumbersome. Finally, by waiting to make your charitable gift in your Will you miss out on any potential tax benefits you might get from those gifts and, instead, your estate may incur and estate tax debt because the assets remained in your estate until after your death.
In fact, a trust is frequently used for this purpose because a trust offers a number of advantages that a Will cannot. For instance, you have the ability to retain a significant amount of control over how your designated charity 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, offering additional reassurance that the assets you gift will continue to grow and further your philanthropical goals.
As the Settlor of your trust you can appoint anyone you choose to be the Trustee; however, given the complex nature of a charitable lead or remainder trust you may wish to consider appointing a professional Trustee. One of the most common mistakes settlor’s make is appointing a family member or close friend as their Trustee without actually considering whether or not 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, which is why a professional Trustee is often the best choice.
A charitable lead trust is structured so that assets from the trust are distributed to at least one charitable beneficiary for a specified period of time first. At the end of that time period, 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 $1 million into the trust. The terms might direct distributions in the amount of $50,000 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 four adult children.
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 of time with the remainder assets being distributed to at least one charitable beneficiary at the end of the time period. Using that same $1 million, in a charitable remainder trust you might create terms that direct distributions of $20,000 to each of your four 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.
A donor advised fund or annuity may also work for your gifting. It works by transferring gifted assets into the fund. Although you will no longer own the assets, 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.
Creating a family foundation is yet another way to include charitable gifting in your estate plan. This option, however, if 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. If you do create a family foundation, it can be an amazing gift to pass down to future generations.