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Planned giving: Here's what to consider: Many charitable techniques can help donors maximize their gifts, tax savings

September 29, 2008

If you have continuously donated money and time to specific organizations, or if you want to save some money on taxes, or maybe a little of both, planned giving might be a way to continue both of those aims.

However, there are a few things to consider, such as how to set up the planned giving, what the money can or can't be used for, who can speak for your interests after you die, and obviously how much money will go to charities after factoring family members and others on your list.

To figure out if planned giving is something that should be included in estate planning, there are a few different paths, said Gina Giacone, a partner at Ice Miller in Indianapolis who focuses her practice on gift, estate and trust taxation, estate planning, estate and trust administration and charitable giving.

"A lot of times clients have particular charitable intentions," she said. "They either have been touched by something in their lifetimes or have organizations they have supported during their lives that they want to continue to support after they pass away. The job of a good estate planning attorney is to bring that up."

Rob MacPherson, vice president of development at the Central Indiana Community Foundation, added that clients should also consider all aspects of their wealth they may not otherwise consider, such as life insurance policies, retirement assets, investments, properties such as houses, farmland or vacation homes, in addition to cash and securities they have if they can determine that their heirs wouldn't need the entire amount.

MacPherson added the Central Indiana Community Foundation's resources are also available for free to any professional advisor to help them with clients or become more in tune with the charitable aspect of planning.

More information is available at www.cicf.org. There's a link that says, "Find Professional Advisor Resources."

Charitable trusts

Once that is all considered, to get the most benefit, Giacone said, one option is to set up a charitable trust. This way, the donor will be able to save on income taxes for the money they put into the trust that is earmarked for charitable giving, and their heirs will also spend less on estate taxes, depending on how that vehicle is set up.

A charitable remainder trust is a trust that pays out an income stream either over a term of years or over the donor's life, generally back to the donor, she said. At the expiration of the terms or when the donor passes away, anything remaining in that charitable trust passes on to the charity the donor has designated. These can be structured in various ways.

A charitable lead trust is "the opposite of a charitable remainder trust," Giacone said. "There is a term set for which a charity receives a stream of payments, which may be during five-year, 10-year, or 20-year terms," she said. When the term ends, whatever remains in the trust generally passes on to the donor's children.

Donors may also be able to change their planned giving arrangements.

If a client wants to donate to a charity according to his or her will and trust but doesn't tell the charity, "those are revocable instruments. ... That's the easy case," Giacone said. "The general rule is the promise to make a gift is unenforceable, but there are two exceptions to that general rule."

If the donor receives something in return, such as a building named after them at a university for giving a large gift, or if a donor pledges to give so much over a certain amount of time and the recipient has already begun plans to use those pledged funds to implement a program, start new construction or renovations, or to support a chair position, those would be enforceable contracts.

More knowledge

Because there is sometimes a need for a contract between donor and organization when there are large amounts of money involved or specific intents of the donor-or charity-Giacone and MacPherson have noticed that both sides have become more sophisticated in how they do due diligence and also in the wording of those contracts.

This may be because more information is available on the Internet, and also because there are more issues being considered that before may not have existed, such as controversial research methods using stem cell research that didn't exist in the past.

"People are being more proactive in seeking out information about the viability of the leadership, the organization's financial track record," MacPherson said. "Donors are asking, 'Am I making a good investment?' ... We make our staff available to do that due diligence, and we're seeing more requests for that due diligence, to make sure it's an informed decision."

Seeking advice

MacPherson added they can also offer assistance on how to interpret the information that is available.

"A group supporting 'intermediaries' doing workforce training and looking at blighted properties, but not doing the actual redevelopment or getting people off the streets will have more going to administrative costs," he said. "I also warn people to not just look at the percentage spent on fundraising, because there's always a story behind the numbers."

The foundation also is a grant maker, so they have seen both sides, which helps when they're called in to facilitate agreements between donors and charities. They will also follow up with the organizations who receive the grants to make sure things are going well on both sides.

"We think that in this role of charitable advising, we can add great value to people's lives, help them to be more satisfied and fulfilled if they have a partner and spent a little more time doing it. It's all that we do," he said.

Having communication in the beginning between donors and charities also helps lessen the need to go to court.

In one case, Robertson v. Princeton University, a family that alleges money given in 1961 for a program to train students for government service was used inappropriately.

Two Web sites are devoted to the case: www.robertsonvprinceton.orggives the family's side, and www.princeton.edu/robertson gives the university's side.

The courts also come into play when a gift can no longer be used by a charity.

According to Indiana Code Section 30-4-3-27, if for the charity it "becomes impossible, impracticable, wasteful, or illegal to carry out the particular purpose" of donated funds, "the court may direct the application of the property to some charitable purpose which falls within the general charitable intention of the settlor."

"The other concept is equitable deviation," Giacone said, "which is similar to cy pres but applies to the administrative terms of a gift. If it's no longer feasible to administer a gift in a certain way," with court permission, the charity may deviate from terms of the agreement. See Indiana Code Section 30-4-3-26.

Giacone said most states have similar terms, and that the concepts are not that new. While these concepts may sound like they're easy to apply, Giacone said they're not as simple in practice.

"You have to really be in a situation where the charity's hands are tied ... before the court will come in and allow deviation from the donor's intent," she said.

But even though not everyone will have a large enough estate for a charitable trust or contract with a charity, "Anybody can do planned giving," MacPherson said. "Just because you may not seem to be cash wealthy, it doesn't mean there aren't other ways to be charitable. ... I would encourage anyone to talk with an advisor, or I can show you how to make a gift."
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