Leaving a Legacy: How to give through your estate?

By Corinne Hanna and Abby Mason
Abacus Planning Group, Inc.

 

Gifting through your estate can be simple or complex. Knowing the benefits, how assets are transferred at death, and charitable gifting strategies will help make your gifting decisions easier. Devise a plan that meets your needs and achieves your goals.

Benefits

• You retain control of your money for your lifetime support and receive the growth of your assets.
• Your charitable gifts continue to transform other’s lives and organizations close to your heart for
  many generations.
• You may receive income and estate tax benefits at death.

How assets are transferred at death

At death, you can leave assets to charity by way of your estate documents or beneficiary designations.

Estate documents are drafted by an attorney and should include:

• Last Will and Testament, which directs assets in your name like real estate, bank accounts, and brokerage accounts
• Trust documents, which direct assets titled to the trust

You will need to work with an attorney to update your estate documents to incorporate gifting. You can include specific bequests in your estate documents to leave a specific dollar amount or percentage of your estate to charity.

Beneficiary designations are forms used to control specific accounts and assets including:

• Tax-deferred retirement accounts [e.g., IRA, 401[k]]
• Life insurance

Beneficiary designations are updated by signing a form with the account custodian. No attorney fees or costs are involved with updating beneficiary designations. You can change your beneficiaries as often as you wish. You will name a primary beneficiary and contingent beneficiary. The account would go to the primary beneficiary first. If the primary is predeceased, then the account will go to the contingent beneficiaries.

You may divide your retirement account between charities and individual heirs, allocating certain percentages to each beneficiary. If you are married, some retirement accounts require the spouse to consent if the spouse is not named the primary beneficiary of your retirement account. Talk to your account’s custodian to determine whether such restrictions exist.

Using beneficiary designations to direct your charitable legacy is ideal for individuals with tax-deferred retirement accounts because charities do not pay income taxes. If your tax-deferred retirement account is left to an individual, the individual will pay income taxes on any money withdrawn from the inherited retirement account. You should not use a Roth retirement account to fund charitable gifts at death unless you have no other heirs.

Charitable gifting strategies

You can incorporate a donor-advised fund or community foundation into your estate documents or beneficiary designations. Donor-advised funds are accounts functioning like a charitable checking account. The funds are transferred to the account, and you no longer own the funds. However, you choose the investments and direct funds the charities you choose. At death, your IRA funds could be directed to a donor-advised fund and distributed to charity immediately or through an endowed giving program.

Donor-advised funds allow you to name a successor trustee responsible for distributing assets to charities after your death. You may want to include your children or other heirs in your decision-making about the donor-advised fund during your life. The next generation would then continue your legacy by distributing the assets in your donor advised fund to charities.

Other options include establishing Charitable Lead Trusts, Charitable Remainder Trusts, and private foundations. These options are administratively more complex and you would need to consult with an attorney.

Consider the benefits of gifting, how your assets are transferred, and charitable gifting strategies when creating your gifting plan. It is always prudent to consult an attorney or financial advsior to understand all your options.

 

About the authors:

 

 

Corinne Hanna and Abby Mason

 

Corinne S. Hanna, CFP® is a 2006 graduate of the Honors College at the University of South Carolina with a BS in Mathematics. In 2009, Corinne received her MS in Mathematics from Cornell University.  She joined Abacus in 2011 and received her CFP® designation in 2013.  Corinne is a Level II candidate of the Chartered Financial Analyst program.

J. Abigail Mason, CFP® is a 2007 graduate of Winthrop University with a BS in Business Administration and a minor in Accounting.  Abby began her career at Abacus in January 2008.  She was awarded the CFP® designation in 2011 and plans to begin working on the CPA certification in 2016.

As members of the financial planning team, Corinne and Abby works closely with clients to understand their goals in order to develop and implement a comprehensive financial plan to achieve those goals.

 

Abacus Planning Group, Inc.

Abacus is a financial advisory and investment counsel firm known for its passion in creating success for clients and family businesses through skillful listening and smart financial decision making.  Managing over a billion dollars on behalf of its 200 plus clients, Abacus consists of a team of multi-disciplinary experts who work collaboratively to serve its clients.