The charitably inclined choose often to give in a variety of ways. Some have a favorite charity or two on which they choose to focus their charitable efforts. For others, the end-of-year giving season brings on a flurry of $25 or $50 checks to nearly everyone who asks them for a donation. Regardless of how people choose to give, they have to balance their giving against the need to provide for themselves and their families.
Although every little bit helps, it's not unusual for charitable donors to become a bit frustrated with their gifts. Increasingly, donors want to see tangible results from gifts, and it's difficult to see direct results from small donations made over time. While even $10 donations may have an impact on the life of a needy person, charitable organizations want to give donors as much satisfaction from their gifts as they possibly can, especially if it means getting more resources to pursue their missions.
Choosing to make a bequest to a charity is one way in which you can satisfy your desire to make an extraordinary contribution to the common good without any risk to your standard of living. By making provisions to donate part or all of your estate to charity after your death, you don't have to worry about how much of your savings you'll need during your lifetime. That way, your wish to do good can be the primary factor in determining the size of your gift.
In many cases, making a charitable bequest is as easy as adding a sentence or two to your will. To make minor changes to your will, many attorneys will draft a document called a codicil, which allows you to add, remove, or modify certain provisions within your will. If you use a revocable trust as the primary instrument for your estate planning, your attorney may similarly choose to draw up a short amendment to your trust rather than create a brand new trust document. On the other hand, if it has been some time since you last had your will or trust reviewed, your attorney may recommend creating a new document from scratch. This will allow your attorney to include updated language in your documents that reflects changes in the law or in your particular personal situation.
There are a number of ways in which you can shape your bequest. You can state a specific dollar amount to go to charity, or you can leave a certain percentage of your remaining assets as your donation. Without adding too much complexity, you can also make your gifts conditional on other circumstances, such as whether or not a loved one is still living at the time of your death.
Providing for others
You may wish to include provisions in your will that will allow family members (or others) to benefit from your estate. The easiest way to do so is to divide your estate into separate parts, leaving some assets for family members and other assets for charity. However, if you eventually want all your assets to go to charity, but are comfortable letting your heirs draw income from your assets over a period of time, you can set up more complicated strategies known as planned gifts.
Planned gifts come in different flavors. With a charitable gift annuity, you can arrange to have your charity make regular payments of income to whomever you choose, either for a certain period of time or for the remainder of their lives. If you don't mind a bit more work, a charitable trust not only allows you to leave income for your chosen beneficiaries, but also gives you greater control over how your assets will be invested after your death. Most charitable organizations have someone on staff who can help advise you about these sorts of gifts.
Don't forget your retirement accounts
Because charitable bequests often employ estate planning documents like wills and trusts, it's important to remember that these documents don't govern every type of asset. Most notably, retirement accounts and life insurance policies make you use their own forms to choose who will receive those assets after your death. In the event of a conflict between your will and the beneficiary form, the person named on the beneficiary form will almost always receive the asset.
Naming a charitable organization as the beneficiary of your retirement plan is a particularly good way to leave a bequest. Ordinarily, if family members or other heirs inherit your retirement accounts, they will have to pay income tax as they take withdrawals from the account. Because charities are tax-exempt organizations, the donations they receive aren't subject to taxation. To take advantage of this, one strategy you can use is to leave regular assets, like your home, taxable investment accounts, and other tangible property, to your loved ones, while leaving your retirement account assets to charity.
For many people, retirement accounts represent a significant amount of their savings. If donating your entire retirement account to charity would leave too little for your family, you can choose to give only a portion of your retirement account to charity and leave the rest to family members. To make sure you set everything up correctly, you should speak to your attorney, the financial institution that holds your retirement accounts, and your chosen charity.
Even the smallest charitable donation makes a difference. If you want to do something more to help, a charitable bequest may be the best way to balance your desire to improve the lives of needy people with your need to support yourself and your family.
Every year, The Motley Fool's Foolanthropy campaign chooses five worthy charities that use Foolish management practices to make the most of your donations. If you know of a charity that would make the grade, visit our Foolanthropy discussion board and let us know by Friday, Nov. 10. Selections will be announced Nov. 20.