It is the Thanksgiving season. It is time to be thankful for what we have. It is real easy to look at ourselves and our lives and wish things could be better. But look at the world around us. There are always those who are less fortunate.
If you are like most people, you are charitably minded and do help those less fortunate. Studies have shown that more than 80% of Michigan residents give annually to nonprofit charitable organizations. In these challenging economic times, governmental grants to and contracts with nonprofits and community organizations have been severely cut. These groups need continued help from each of us.
In today’s newspaper, there is a giving guide spotlighting some worthwhile local charitable organizations that help those less fortunate or in different circumstances than us. For those of you reading this column online, you can find the giving guide at http://www.pledgetoplan.org. The giving guide is provided by Pledge to Plan, a local organization whose partners are dedicated to encouraging charitable giving.
You are already probably giving annually to charitable organizations that support your passions. However, have you ever thought about what happens to those nonprofits after you are no longer around to make those annual gifts. The charity which is close to your heart can no longer rely upon your support.
During the first several decades of this century, an estimated $11 to $12 trillion will be passed from the World War II and early baby-boom generations to their descendants. Although more than 80% of Michiganders are charitably minded during their lifetimes, less than 10% include charities in in their wills or other estate plans. Imagine the benefits to charities if that 10% doubled, or went even higher.
I believe it is important to recognize the significance of charitable gift planning and its impact that you can have on the organizations that keep our community moving during times like these. There are a variety of tools and techniques that you can use to plan your charitable gifts. Because charitable contributions get favorable tax treatment, with these planned charitable gifts, you either get a current income tax deduction, or after you are gone, your estate or trust may get a deduction.
Another organization that encourages charitable giving is Leave A Legacy®, which is a national group of professional advisors and nonprofit groups, including social service and arts organizations, churches, hospitals and educational institutions. The partners help promote the message that people from all walks of life can “make a difference in the lives that follow” through charitable giving.
Regionally, this group works through Leave A Legacy Southeast Michigan, which provides charitable giving information and speakers to residents and community groups. You can get more information by contacting Leave A Legacy Southeast Michigan at (810) 375-2180 or www.leavealegacysoutheastmichigan.org.
There are unlimited types of vehicles for planning charitable gifts. Here are my top ten that I have developed with help from information provided by Pledge to Plan and Leave A Legacy Southeast Michigan:
- Prepare an estate plan. The latest statistics show that less than half of Michigan residents have prepared a will or trust to take effect after death. Without a will or trust, you lose control of your financial or other assets that have taken you a lifetime to acquire. If you have not prepared and signed a will, you still have one. You just didn’t write it. The folks in Lansing did. Wouldn’t you want to be making those decisions about your stuff after you are gone, rather than leaving it up to someone else?
- Name a charity in your estate plan. Just think about the positive impact on our communities if everyone left a bequest to a charity. Even small gifts can make a difference. Many charities survive because of the generosity of small gift donors. You can leave a specific dollar amount or percentage of your estate to your favorite charities in your will or trust.
- Remember a charity which made a difference to you. You or a loved one may have been helped out by a charity, such as treatment after an accident or illness, or assistance after you lost your job. By naming this charity in your estate plan, you can help them help others in similar situations.
- Remember a charity which affects your passions. You may be passionate about helping animals who have been abused or about cleaning up our environment. By naming charities whose missions include your passions in your estate plan, you can continue to fund your passions after you are gone.
- Retirement Plan Beneficiary. If you have a favorite charity, you can remember them by naming the charity as a beneficiary of your IRA, pension or other retirement plan. They do not have to pay income taxes on the distributions like individuals do. If you are over age 70½, you can make annual qualified charitable distributions (QCDs) from your IRAs, up to certain limits. The funds must be transferred by your IRA trustee directly to an eligible charity. You do not have to report QCDs as income on your individual income tax return, but you also do not get the corresponding charitable contribution itemized deduction. QCDs are neither subject to the charitable contribution percentage limitations, nor are considered in determining the phase-out of any deduction, exclusion, or tax credit. And in addition, QCDs count towards your annual IRA required minimum distribution (RMD).
- Life Insurance Policy Beneficiary. Similarly, there may be that life insurance policy you’ve had for years. You may even have forgotten about it because it is fully paid up. By changing the beneficiary to a charity, you can help that charity after you are gone. Or if you are still insurable, consider purchasing a new life insurance policy and naming your favorite charity as the beneficiary. You can then leverage the premium payments into a much larger gift with a greater impact.
- Memorial Gifts. After a death, it is common to honor the deceased with flowers to the family. The flowers are usually beautiful, but often are short-lived. In addition or instead, you can remember your deceased loved ones by making a memorial gift in their name to a favorite charity.
- Use specific assets as gifts. Do you have that extra CD, stock or bond? Or what about the real estate, vehicle, art or jewelry? Leaving specific assets to charities not only will help out the charities, but also may provide income or estate tax benefit to you and your loved ones.
- Spread the word about giving. Not only should you remember charities in your will or estate plan, encourage family and friends to do the same. Ask your financial or other professional advisors to remember charities and include charitable gift planning in their counsel to other clients. This gets the word out to even more people and increases the impact of charitable giving.
- Disinherit the IRS. If you have a taxable estate (over $5.45 million in 2016), your estate can go to three classes of beneficiaries: loved ones, charities and the IRS. With proper planning and enough time, you can eliminate one of those beneficiaries. Most people choose to disinherit the IRS. By leaving a little bit of your estate to charities, you can leave all of the rest to loved ones, with none going to the IRS.
It is very simple to leave your legacy. Talk to your favorite charities. The administrators or development officers can give you information about how you can remember them. Speak to your professional advisors. Your attorney, accountant, life insurance agent or financial advisor can also assist you in planning for your charitable gifts. You can make a difference in the lives that follow.
By Matthew M. Wallace, CPA, JD
Published edited November 27, 2016 in The Times Herald newspaper, Port Huron, Michigan as: Plan today to make a difference