Money Management - February 2007

Values-Based Estate Planning

Preparing Charitable Donations

by Ron Leavitt

For many people, supporting family members and giving to charitable organizations is the most fulfilling way to spend their hard-earned money – and is critical to the survival of many charities. The movement commonly referred to as values-based estate planning is a growing trend among individuals with significant estates.

Today’s investors and money management clientele are genuinely interested in giving to charitable organizations to help aid those less fortunate as well as shape their family’s wealth values. They are seeking professionals to provide advice and management for philanthropic activities.

The outpouring of generosity to charities over the past several years can be attributed to charitable vehicles, such as donor-advised funds and charitable trusts, which have made philanthropy more cost-effective and accessible.

Another vehicle that has allowed donors more flexibility is the Pension Protection Act of 2006 that was signed into law this summer by Congress. The act, which primarily focuses on retirement plans, includes provisions related to charitable giving and permits individuals ages 70 years and older to make direct transfers of IRA assets to qualified public charities without the transfer being treated as an income distribution.

Previously, individuals making withdrawals from their IRAs would have had to include the amount of the withdrawals in their taxable income and would have been entitled to a charitable income tax deduction to offset the inclusion. While this amounted to a wash for many individuals, the new law may help others including: individuals who are required to take minimum withdrawals but don’t need additional income; transfers to charity meet the distribution requirements; individuals who regularly give up to 50 percent of their adjusted gross income to charity; individuals who live in states where a charitable deduction is not available for state tax purposes; individuals who do not itemize and who make charitable gifts in an amount less than the current standard deduction; and individuals whose major assets reside in their IRAs and wish to make significant charitable gifts before the end of 2007.

And although opportunity is only available for 2006 and 2007 and no charitable income tax deduction is allowed for gifts made in this way, the new act does allow donors greater flexibility to oversee their giving today and into the future.

When planning charitable contributions like IRA rollovers, individuals should consult a professional and identify key items, including which selected charity to give to, determine how much money would be ideal to give and what type of giving plan, or charitable vehicle, is preferred. Also, identify specific goals for giving so you can measure your achievements, seek out organizations that support strategic charitable giving, evaluate effectiveness of the charity and adjust your giving as needed, and periodically review your mission to ensure it maintains relevance to you and your goals.

Working together with a financial expert will ensure that assets support all causes they are intended to help. It also establishes an order of importance to decide how much money should be received by certain groups.

Implementing a values-based estate planning program can be a rewarding experience for those donating and for the charities receiving donations. It also serves as a tactical and powerful way to donate to respectable causes and engage heirs to share in the spirit of the donor’s philanthropic efforts.

Ron Leavitt
Ron Leavitt is a principal with Capstone Capital, a wealth management and financial planning firm.