I am fortunate to derive great personal fulfillment from the work that I do. I love visiting with clients, listening to their concerns and goals, and helping them to create estate plans designed to address their concerns and achieve their goals. Among my favorite topics to address with clients is teaching philanthropy through estate planning.
Charitable giving, or philanthropy, is not a priority for all of our clients. The variety that comes with a successful estate planning practice is what keeps the practice interesting. Some of our clients consider charitable giving to be an important part of their estate plans and want to pass that value on to their loved ones. Crafting an estate plan that helps clients to achieve this goal is a part of my job that I love.
Years ago, if a family wanted to establish a common fund for charitable giving, they were advised to establish a family foundation. A family foundation can be either a non-profit corporation or a trust. It is a separate legal entity with terms that govern the administration of the legal entity. A family foundation has considerable state and federal filing requirements including the preparation of an application for tax-exempt status which must be filed with the IRS.
These days, an alternative to establishing a family foundation is to establish a donor-advised fund under the umbrella of a public charity. The New Hampshire Charitable Foundation accepts donor-advised funds. Many financial organizations have established public charities that are able to facilitate donor-advised funds such as Fidelity’s Charitable Gift Fund. One benefit of using a donor-advised fund is that there are virtually no start-up expenses or lead time. The administrative tasks are handled by the umbrella organization. The primary disadvantage of using a donor-advised fund is that the individual has less control over the creation and administration of the entity.
As part of this process, clients need to consider whether they would like to establish and operate the charitable entity during life, or whether the charitable entity will come into existence only following death.
The creator of a charitable entity typically gets the family members involved by making them trustees, board members or advisors to the donor-advised fund. This will only be effective if the family members designated get involved in the process of deciding how and when the charitable funds should be distributed.
There is a trend toward getting family members involved in charitable giving at an early age. One example involves parents working with a group of college-age children. The parents indicate that they will be giving a certain amount to charity at the end of the year. They encourage their adult children to consider which charities they would like to see supported. Then, at a family meeting, all of the family members make presentations about why their favored charities should be supported by the family. The group votes following the presentations and the funds are distributed to the charities that the group selects. This can also be done on a smaller scale with very young children. A variation on this theme is to encourage children to pool funds that they otherwise would spend on holiday gifts for their parents or for each other and make a donation to one or more charitable organizations selected by the children.
What if the family members are just not interested? It is important to recognize that charitable giving is simply not everyone’s cup of tea. The estate planner and client need to have in mind what will happen to the charitable foundation or the donor-advised fund if family members are no longer involved. Do the funds simply get distributed in one lump sum to a pre-selected charity? Are the funds held and administered by professional third-party advisors, such as the client=s accountant, attorney or a trust company?
A thoughtfully structured estate plan can facilitate a process of involving family members in charitable giving. Transferring this value and a framework within which it can operate can be the most important bequest a person leaves to his or her family.
Call the office to schedule a meeting with Alyssa or me if you are interested in considering how your estate plan could be modified to involve your loved ones in charitable giving.