For decades, clients planning a major gift would often focus with their advisers on maximizing the tax benefits (income and estate tax) of the donation. By contrast, today’s prospective donor may need to weigh the impact of a major gift on future financial security.
If a retired client has a 30-year planning horizon, how will a major gift or a long-term charitable commitment affect his ability to meet decades-long financial targets? The focus is changing as the worries of funding for long post-retirement years have overshadowed tax and estate planning.
A result of this change in focus should be more comprehensive financial forecasting to guide a client on how to structure large donations. More complex gift structures may be in order. A client may be willing to commit certain dollars now and in the future, but she might wish to make other commitments contingent on her future financial condition. The giver may pay part of a charitable pledge currently, another part over time and the balance upon some future event, all to permit the client to remain secure financially.
Here’s an example: A donor wishes to commit $500,000 to a charity. This may consist of an outright gift of $100,000 now and the funding of a $400,000 charitable remainder trust. If the donor’s financial status is secure in future years, she might donate some or all of the annuity payment she receives from the CRT to the charity. If in 10 years she is still meeting her financial targets, she could donate her remaining annuity interest in the CRT to the charity, thereby accelerating the entire gift.
Such discussions are more likely to involve the charitable gift officer and the financial adviser — rather than the client’s estate attorney, as may have been more common in the past.
Here’s another example: A donor would like to make a large visible commitment to a charity in which she is a board member. To address cash flow concerns, the donor funds part of the donation now and the balance with a life insurance policy. That way she feels more confident that if she dies prematurely her spouse will not be burdened by a large bequest. Further, since the bequest provides no estate tax benefit, she prefers the current income tax deduction for the amount she gives the charity each year to pay her premium.
Giving a remainder interest in a residence can permit a client to assure the intended charity will receive a valuable bequest even while she retains the economic benefit of continuing to live in that residence for life.
Sometimes, clients planning a large charitable gift will factor long-term care considerations into the plan. Long-term care insurance coverage may be purchased as part of the charitable planning to assure the donor a safety net.