“Backstopping” Your Gift Through an Estate Provision — Part One

Philanthropic intent does not wane in uncertain economic times. We find that our friends who believe in our work and want to support it are as committed to our future as ever. However, in these times perception is important. Many may think their ability to provide support has been diminished, and consequently careful gift planning is more important than ever.

Consider the following examples:

  • A volunteer who makes annual gifts to enhance his favorite program creates an endowment to fund those gifts through a series of charitable gift annuities.
  • The widow of a faithful donor creates an endowment through her estate plan and then through a series of IRA charitable rollovers begins to fund the endowment during her lifetime.
  • An endowed bequest ensures a supporter of a particular program that his annual gifts will continue to operate the program after his death.
  • An anonymous donor wants to create a special project through a series of annual gifts. She adds a provision to her will stating that should the fund not have reached a particular amount upon her death her estate would provide the amount necessary to bring it to that level.

In the above examples, each donor has conceived his or her ultimate gift and has used creative gift planning to bring that vision to reality in a way that allows for maximum flexibility. “Backstopping” your charitable intent through an estate provision and then making lifetime gifts to bring your ultimate gift to fruition is a way to make a gift you may not have thought possible.

Donating appreciated assets has always been a tax-efficient way to make a gift. The donor takes a charitable deduction for the current value of the donated assets and avoids capital-gain tax on the appreciation. But what if your portfolio, your real estate, or your retirement account has decreased in value? Reluctance to liquidate an asset or to enter into an irrevocable gift arrangement is certainly understandable. Because it allows the gift arrangement to be revisited when economic times improve, the revocable nature of an estate provision makes such a gift plan even more attractive.

We have long counseled donors who want to make provisions in their wills to support our work to express those gifts in terms of percentages of their estates rather than for set dollar amounts. For example, a donor with a net worth of $4 million wants to leave us $1 million. We advise that the bequest be expressed as 25% of the donor’s estate rather than $1 million. The reasons are twofold: In boom times, the dollar amount of that 25% increases. The proverbial rising tide lifts all boats. However, in down markets the opposite may be even more important. By expressing the amount we receive as a percentage, the individuals who get the other 75% of your estate are provided for at a level commensurate with your original intent.

Another useful way to support our work through your estate plan is to make us the remainder beneficiary of your estate. “I found this idea to be the most useful way of planning my estate gift,” says a recent donor. “Your gift planning staff encouraged me to detail the individuals and organizations I wanted to leave money to and to make specific bequests to each of them. After I had done that, I left the remainder of my estate to support a pet project. I like knowing that those people who are important to me are going to be provided for regardless of market conditions. The remainder is a fluctuating amount, but your advisor has assured me they are delighted with what I have done and will use the bequest for the purposes I have specified. For me, it was the ideal way to provide support in a meaningful way.”

Obviously, none of us knows when the current market will recover. Moreover, we understand when a donor tells us he or she does not want to be locked into a gift arrangement that cannot be revisited and adjusted when market conditions improve. At the same time, we want to enthusiastically encourage donors to contemplate their philanthropic vision. We want donors to think about how their ultimate gift could transform our work, even though the timing for that gift might not be right now. The estate-provision backstop accomplishes this, whether your gift comes to us in the distant future or perhaps sooner as an improving economy puts you in a stronger position. We would be pleased to explore this idea with you further. Just write or call.

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