A message from Attorney R. Nicholas Nanovic, Partner at Gross McGinley, LLP:

Five Tips for Establishing a Charitable Gift in your Estate Plan

Attorney Nanovic

Are you considering leaving money to a charity in your Will or Trust?  If so, consider the following tips, and discuss with your personal legal advisor and tax advisor.

• Identify the Correct Charity. Unfortunately, many people do not correctly identify the charity in their legal documents.  The mistake is usually not discovered until after the donor’s death.  The remedy after the donor’s death is often expensive, requiring court hearings and someone’s payment of legal fees.  If you want to include a charity in your estate plan, you should discuss your planned gift with a representative from the charity to confirm its legal name.  You can also use the IRS Tax Exempt Organization Search (https://apps.irs.gov/app/eos/) to confirm the legal name of the charity you would like to benefit.

• Consider Naming the Charity as a Beneficiary of Your Traditional Retirement Plan. From a tax perspective, traditional retirement plans are often the least favorable asset for an individual to inherit.  In Pennsylvania, the value of the traditional retirement plan will be subject to the inheritance tax, plus the beneficiary will need to pay income taxes as he or she withdraws funds from the traditional retirement plan.  Due to this double-taxation if an individual inherits your traditional retirement plan, consider naming a charity as the beneficiary because Pennsylvania does not impose an inheritance tax on assets given to charities and charities do not pay income taxes.

• Decide Whether You Want to Restrict the Gift. If you do not include any restrictions on your gift, the charity will be allowed to use your gift for any purpose that the directors of that charity deem to be reasonable.  If you would like to ensure that the funds are used for a particular purpose or program, your legal documents must adequately define these restrictions.  If you do wish to impose restrictions, consider whether it will be practical for the charity to honor those restrictions.

• Consider Assistance from a Community Foundation. More than 750 community foundations exist in the United States, and odds are high that a community foundation exists in your community.  If you would like to benefit your general community but you are not sure what organizations exist that best serve your community, the representatives at your local community foundation may be able to assist you.

• Examine the Possibility of Using Charitable Trusts and Charitable Gift Annuities. For larger gifts, you may want to consider whether a Charitable Trust or Charitable Gift Annuity is more sensible for you.  These options require strict compliance with federal tax laws.  Discuss these potential options with your legal advisors and tax advisors.

As we enter a new year, now is the time to get your affairs and your estate in order. Make an appointment with your legal or tax advisor today