It was 2001 when Andrea and I first revised our wills and created a basic estate plan.
At that time, we were doing what every young parent should do—put a will in place so that we could determine what would happen to our children and our belongings upon our deaths. If you don’t have a will when you die, then the State determines what happens to your children and your belongings. If you don’t have a will, make one now!
But I have a confession to make. When we executed those documents, charitable giving was not on our minds. I had never been approached by anyone to consider a charitable gift in my will. It wasn’t that I was unwilling to do it, but obviously I didn’t have a clue.
During this last year, we have been reviewing, revising and updating our estate plans.
Today, our children are in a different stage of life, but the documents are out of date. (I recommend that you do not wait 12 years to review your will. Do it much more regularly!)
And through my work as a generosity consultant who also happens to be a Certified Fund Raising Executive (CFRE), I’ve learned a lot about gift planning.
So this time around, we wanted to explore what we might be able to do charitably through our estate plan.
I admit that I did not go into this review with any level of expectation about what we might be able to do financially. We are not wealthy people and do not have a lot in accumulated assets or retirement funds.
But we do have some assets and retirement funds, so we approached the exploration of “what might be possible” with open minds and open hands.
People think that they don’t have enough to consider leaving some of it to a church or charity. This is one of the first “objections” to considering gifts in one’s will or estate plan, by the way. Another common objection – wanting the children to receive everything at your death.
Many are hesitant to consider leaving a gift to charity because they want to leave everything to their heirs, usually children and/or grandchildren. I admit – we went into this with similar thoughts, but again, with an open mind as to what might be possible.
Most people think that giving to charity reduces what their heirs will receive. Not necessarily! It depends on what kind of investment vehicles and retirement funds you own. This was a huge learning for us!
You see, I thought that because my estate didn’t exceed $5M, (trust me, it doesn’t!), I would avoid the IRS estate tax. But here is something I did not know.
Part of our savings sits in retirement accounts – specifically a couple of IRA accounts. The balance of those accounts when passed to our children at our death, will be taxable transfers (even if the funds are passed directly to their IRA accounts).
In other words, our children will have to pay taxes on those funds at the current taxable rates. The larger the balance transferred, the higher tax bracket the kids may find themselves in that year. Yikes! The IRS could end up taking up to 40% or more of those funds!
A little detail on retirement funds. In our case, our IRAs are both tax-deferred accounts, meaning that when we make a contribution to them, our taxable income is reduced during that calendar year. The accounts grow tax-free, but we will need to pay (whatever our then) taxable rates on those funds when we withdraw them in retirement.
This is unlike a ROTH IRA, where contributions are not tax deductible, but grow tax-deferred and funds can be withdrawn tax-free at a certain age. ROTHs didn’t exist when we created our IRAs and we’ve not found it advantageous to transfer them to ROTH accounts, although that is something you might want to investigate for your own personal situation.
In the end, we created an estate plan that will allow us to leave a charitable gift. But here is the best part—this will be the largest financial gift that we’ve ever been able to make! I am ecstatic at our ability to do so!
Our children will still receive almost every dime of what they were going to initially receive had we not created the plan. So where does the charitable gift come from? It comes from what the IRS would have received had we not executed our current plan.
In my next post I’ll list the different types of gift instruments available to us in the United States, with basic definitions of each. Then we’ll sum up this series of posts with how you might go about implementing a legacy generosity strategy in your church.