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Charitable Giving Through Your Estate

The United States of America has a tradition of philanthropy that is the envy of the rest of the world. In 2007, a record $307 billion was donated to charity by American citizens according to the annual Giving USA survey. No other nation comes close in terms of the total amount of charitable giving that goes on each year in the United States.

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The same holds true even when you adjust for the wealth of Americans relative to poorer nations in the world. A recent study conducted by the International Charities Aid Foundation reviewed charitable giving on a per capita basis as a percentage of gross domestic product. Doing so provides a comparative ranking of generosity which adjusts for the relative wealth of different countries.

The study concluded that Americans give more of their resources to charity than any other people of the world. The average United States citizen contributes more than twice as much of their discretionary income to charity each year as their counterparts in the United Kingdom and Canada – the nations that come closest to matching US generosity. The typical American donates more than seven times as much to charity as a German citizen, and more than 11 times as much as a French citizen.

And this incredible tradition of American philanthropy is not limited to the wealthiest segments of society. Eighty-nine percent of American households make a gift to charity each year, according to one of the largest associations of charities, Independent Sector. Giving back is pervasive at all levels of society in the United States and is one of great strengths of this nation.

Yet within this uniquely American characteristic is a paradox which befuddles the imagination.

The Giving Paradox

A paradox is defined as a series of facts which leads to a reality which defies intuition. The giving paradox fits that description precisely.

Consider that while nearly 90 percent of American households give to charity each year, less than eight percent of all estate plans include a charitable donation.

At first glance, this disparity seems perfectly logical. After all, the annual donations of most Americans tend to be relatively modest when compared to their family’s total assets. It’s one thing to donate $100 each year, but it’s entirely another matter when that charity asks you to donate 10 percent of all the assets you have accumulated over the course of your lifetime.

While this seems reasonable enough, upon further review it makes absolutely no sense at all. The simple reality is that leaving a portion of your estate to charity is the most painless gift you will ever make. Remember, the gift to charity you intend to make through your estate is generally realized only when you and your spouse no longer have any use for your money.

Mark Jinkins, a partner in Door County’s Pinkert Law Firm, reminds his clients that there are only a few options as to what you can do with your money when you leave this earth. Ultimately, you can leave your estate to your heirs, entrust it to the government, or give it to the charities that address the issues which are important to you.

“Most clients have more than what they started with when they came into this world and the Door County community is part of what they cherish,” says Jinkins. “No one can take whatever they have accumulated with them. Whatever they have will go somewhere when they are gone.”

Philanthropy in the United States is in a period of great opportunity. The country is in the early stages of the largest intergenerational transfer of wealth in the history of the world. Boston College estimates that over the next 40 years or so, $41 trillion dollars will change hands as the Baby Boom generation departs this world and transfers their assets through their estate plans. Imagine the tidal wave of charitable giving that could occur in this nation if only a few more people would include a gift to charity in their estate.

Increasing by only a few percentage points the roughly eight percent of estates that include a gift to charity would generate unprecedented levels of giving that would transform communities across the nation. Thankfully, there are a considerable number of Door County residents who understand the possibilities and are leading the way.

“I’ve been an educator all my life,” says Miriam Erickson of Fish Creek. “The arts perpetuate creativity and that is one of our country’s great strengths.” To ensure that the arts will forever flourish in Door County, she has made a provision for a gift to the Birch Creek Music Performing Center in her estate plans. “We need programs like Birch Creek which develop the creative potential of our youth.”

But for Erickson, giving back to local charity is also about sustaining the quality of life of the community she loves. “When you travel, it’s evident that Door County is unique and we sometimes take it for granted,” says Erickson. She encourages everyone to give back through their estate plans to the causes important to them “because you’re investing in the future of Door County.”

Robert Ross, a prominent Sturgeon Bay attorney whose practice specializes in estate planning, believes that there are many people like Erickson in Door County.

“A significant number of our firm’s clientele have included a gift to charity in their estate plans,” says Ross. “It’s a testament to the quality of people who call Door County home.”

Prioritizing Your Estate

Without question, ensuring you have enough for yourself and your spouse, and then providing for your loved ones, should be the fundamental basis of any estate plan. For a family with minor children, there is also a particular responsibility to ensure their security until they are able to provide for themselves. The far more difficult decision is how much to leave to your adult children.

Dick Egan of Sister Bay says he shares billionaire Warren Buffett’s philosophy on how much money to leave your adult children. Buffett says that you should leave enough money so that your kids would feel they could do anything, but not so much that they could do nothing.

“As is the case with many couples, Annie and I want to share our good fortune with our children and grandchildren,” says Egan. “However, they are not our only priority. We feel a great affinity for Door County, our adopted home since 1995, and we want to make sure that we are able to give something back to the community that has given us so much beauty, joy and contentment.”

Attorney Ross says that he finds a similar sentiment among many of the couples with which he works. “Every day I find that my clients wish to do more than leave money to their children,” says Ross. “They wish to pass on their values to their families and give back to the community. My clients look to me to show them how charitable planning can benefit them, their family and the community.”

While there is no magic formula as to how much one should leave their loved ones in their estate plans, it’s clear that almost anyone can afford to make some contribution from their estate for the betterment of their community.

And that is why charitable giving in an estate plan is such a wonderful opportunity. It allows you to decide what goal your money will work toward. Rather than turning over many of your assets to the government through the estate tax, you can select the charities and causes that are most important to you, then work with your estate planner to build them into your plans.

Charitable Estate Planning is For Everyone

While virtually all Americans from every level of society write a check and make a donation to charity each year, charitable estate planning is still seen as the purview of the wealthy. The complex trusts and estate plans which facilitate gifts to charity are often erroneously considered appropriate only for the rich.

The wonderful reality is that anyone can give back to the community by using the easiest estate planning tool of all. Simply make a bequest by including the following sentence in your will:  I hereby give [a percentage of your estate or specific dollar amount] to [the charity of your choice], of Door County, Wisconsin to be used for its charitable purposes.

It can be as easy as that.

Of course, charitable giving as a part of a larger estate plan often requires the expertise of professional counsel. Door County is blessed to have several highly qualified attorneys with an understanding of the intricacies of estate law. These estate planning professionals can help you navigate the myriad of other tools that are available to you, regardless of your income level.

“Giving is not limited to the wealthy but is an opportunity for each client,” says Attorney Jinkins. Good planning “allows each client to give what they can” and creates a legacy to provide for “the future for continuing the community.”

As an example, leaving your Individual Retirement Account (IRA) to your children is a rather inefficient way to transfer assets from a tax perspective. Hence, an IRA is often the ideal part of your estate to contribute to the community by naming a specific charity as your beneficiary.

For many families, their home has grown to be a significant asset but their children might not have an interest in one day living in their parents’ property. Through a Retained Life Estate, you can donate your home to your favorite charity today, live in it with your spouse for the remainder of your lives, and generally receive a charitable deduction for your generosity. The charity then sells the property and uses the proceeds to further your charitable intent when you no longer need the home.

And the many iterations of the commonly used Charitable Remainder Trust allow you to transfer assets to a trust today, receive an income from the trust for the rest of your life, and the remainder goes to charity as your final charitable act.

Of course these examples, and the countless others which a quality estate planning attorney can discuss with you, are just tools. They provide you with a strategy as to how you can give back to sustain the community we love through a gift in your estate plans. Ultimately, charity must come from the heart.

Attorney Ross likes to quote Winston Churchill to his clients:  “We make a living by what we get, but we make a life by what we give.”

Ideas for Giving

There are many ways to share your financial resources beyond simply writing a check to your favorite charity. Here are some common tools that you might want to discuss with your estate planning professional to see if they’re right for you.

Bequest in Your Will. The simplest estate gift of all. Designate a specific amount or percentage of your estate to your favorite charity and often receive a substantial reduction in federal gift and estate taxes.

Charitable Remainder Trust. Place cash or property in a trust that pays an annual income to you and your spouse for life. After your passing, the remainder of the trust transfers to the charities you’ve selected. You receive income tax benefits the year you establish your trust.

Charitable Lead Trust. Transfer cash or property into a trust that pays an income to your favorite charities for the number of years you select. Once this period ends, the assets held by the trust are transferred to the beneficiaries you name. Often you receive a substantial reduction in federal gift and estate taxes.

Gift of Non-Cash Assets. Give stock, artwork, or other assets that have financial value to charity today, or through any of the gift vehicles noted above. By donating a highly appreciated non-cash asset, you also typically avoid paying taxes on their capital gains.

Retained Life Estate. Transfer your house to your favorite charity but retain the right to live in it for the rest of your life. When you’re gone or no longer want the house, the charity can sell it and use the proceeds to further their important work. Generally, you qualify for a charitable income tax deduction based on the fair market value of your house minus the present value of the life tenancy you have retained.

IRA Charitable Rollover. At age 70½ and older you are required to make annual distributions from your individual retirement accounts – whether you need the money or not. These distributions are normally included in your income and you pay taxes on them. The IRA Charitable Rollover permits taxpayers age 70½ and older to make donations from their IRAs directly to charity without counting them as part of their income for tax purposes.

This information is intended to provide general guidance and is not a substitute for professional counsel. Consult your tax or legal advisor for professional guidance.

Local Attorneys Who Provide Estate Planning Counsel

The Door County attorneys indicate that they are well versed in the intricacies of estate planning

Mark Jinkins
Richard Hauser

PINKERT LAW FIRM
454 Kentucky St.,
Sturgeon Bay
350 Sunset Dr., Sister Bay
(920) 743-6505

Bob Ross
Tyson Cain

ROSS LAW OFFICE
55 S. 3rd Ave.,
Sturgeon Bay
(920) 743-9117

Victor Dana Brooks
Stephen Kase

BROOKS, MOELLER & WINGROVE
30 N. 18th Ave., Building 10A, Sturgeon Bay
(920) 743-8485

David Hanaway
Daniel Duke

HANAWAY ROSS
4086 Main St., Fish Creek
(920) 868-1920

Collin Dahl
ATTORNEY AT LAW
346 Maple Dr., Sister Bay
(920) 854-7100

Richard Hoyerman
HOYERMAN LAW FIRM
10568 Country Walk Ln. # 106, Sister Bay
(920) 854-6070

Stephen Johnson
STEPHEN P. JOHNSON LAW OFFICES
54 East Oak St., Sturgeon Bay
(920) 743-2129

Trudy Toft
TOFT LAW FIRM
45 S. 3rd Ave., Sturgeon Bay
(920) 743-9231

Nina Martel
ATTORNEY AT LAW
508 Jefferson St., Sturgeon Bay
(920) 746-4475

Lewis D. Clarke
ATTORNEY AT LAW
623 Bay Point Rd., Washington Island
(920) 847-2311