May 1, 2008

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Die Charitably

Gifts After Death Assist Heirs and Community

Scott M. McCullough, Alan Berkowitz

May 1, 2008

An Annapolis, Md. woman recently died tragically in a house fire, caused by a portable electric heater, leaving a $7.6 million gift to the Juvenile Diabetes Research Foundation (JDRF) through her will. During life, she had contributed $27,000 to JDRF on behalf of her brother, who had Type 1 diabetes. This gift will fund an enormous amount of diabetes research, accelerating efforts to find a cure. At the local level, James LeVoy Sorenson recently bequeathed his considerable personal fortune to the Sorenson Legacy Foundation, which is governed by several family members who will continue his legacy of philanthropy. The concept of leaving assets to charity upon death, or planned giving, was traditionally utilized only by the wealthy for the benefit of large institutions such as universities and hospitals. However, a greater number of charities are now encouraging donors to consider using a variety of planned gift techniques to extend their support beyond their lifetimes. On average, 75 percent of Americans give to charity annually, with an average donation of $1,800. The IRS reports that in 2004 (most recent data available) Utah ranked second in the nation for average charitable contribution per tax return. It is estimated that the largest intergenerational transfer of wealth in history (more than $41 trillion) will occur by 2055, with 91 percent of the transferred assets being real property, life insurance and retirement assets. These assets generally are not available to make lifetime gifts, but can be used to make posthumous gifts in a way that benefits both heirs and charity. These planned gifts use all assets accumulated during one’s life (cash, land, life insurance, securities, business interests) resulting in contributions that dwarf lifetime giving. With careful planning, donors can maximize the value of their estates to charitable beneficiaries and family by designating tax burdened assets such as retirement plans for philanthropic purposes. Retirement assets are included in the gross estate and therefore are subject to estate tax. In addition, distributions from inherited plans are subject to income tax on the required minimum distributions. Philanthropic minded individuals can eliminate this double tax by designating charitable organizations as the beneficiary of a portion or all of a retirement plan. Many donors are intimidated by the complexity and costs associated with planned giving vehicles such as charitable trusts and retained life estates. The support of a professional advisor can enable individuals to make major charitable contributions using these methods while receiving important tax and financial benefits. Despite the array of benefits associated with complex gifts, the bread and butter of most planned giving programs is the charitable bequest. This relatively simple giving technique accounts for an estimated 80 percent of planned giving revenue. Bequests can be included in a will or trust to provide charities with a specific dollar contribution, a designated percentage of the estate or the residue after providing for family. Some donors establish contingent bequests providing for charity only if designated family members are no longer living when the estate plan is activated. Recently, the use of donor advised funds (DAF) have become an additional alternative to the cost and complexities of a charitable trust or a private foundation. A DAF is a charitable entity made up of a series of accounts held for each individual donor. Upon donation to the DAF, the donor recognizes an income tax deduction. The assets are then held and managed by the fund administrator who, upon the recommendation of the donor, makes contributions to other qualifying charities. For example, if Donor A contributed farm land to a DAF, she would recognize the deduction but pay no income tax on the sale of the farm. Donor A, and her heirs after her, could then recommend that the DAF make contributions to any number of qualifying charities in any amounts it choose, either on Donor A’s behalf or anonymously. Most charities now offer some type of planned giving program, usually with information on their Website outlining the vehicles that can be used to support their mission. Planned giving leaves a legacy of charity for your children and grandchildren, benefits the causes you believe in for years and enhances our community by finding cures, planting trees, feeding the hungry and on and on. Scott M. McCullough is an associate with Callister, Nebeker & McCullough whose practice includes tax, estate and business planning. He can be reached at Alan Berkowitz is the National Director of Planned Giving for the Juvenile Diabetes Research Foundation International. He can be reached at
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