In our June article, we discussed how a donor may conceive his or her ultimate gift, then use creative gift planning to bring that vision to reality in a way that allows for maximum flexibility. Expressing that charitable intent through an estate provision, then making lifetime gifts to bring your ultimate gift to fruition is a way to make a gift you may not have thought possible. In this article, we discuss some ways to structure the estate provision using this technique, which can be called “backstopping.”
We have long counseled donors who want to make a provision to support our work in their wills to express that gift in terms of a percentage of their estate rather than for a set dollar amount. For example, a donor with a net worth of $4 million wants to leave $1 million to support our work. 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 the estate are provided for at a level commensurate with the donor’s original intent.
Many married couples want to make provisions in their wills for the same charitable organizations. Having determined the appropriate percentage distributions for their combined estates to benefit, these couples will use reciprocal wills to accomplish their charitable intent. Essentially, these wills leave assets to a surviving spouse, with the provision that should the spouse not survive, charitable distributions are then made. A simple way of employing this strategy is a provision that says, “I leave all my assets to my spouse if he or she survives me. If he or she does not survive me, I make the following charitable distributions in the following percentages.” (Sometimes, these identical, reciprocal wills are referred to as “I-love-you wills” or “mirror-image wills.”) This method has the added advantage of having couples discuss all charitable distributions they want to make through their estates.
Once this gift plan is in place, the couple has the security of knowing each spouse is provided for after the death of the first, while also knowing the charitable organizations that are important to each of them will eventually benefit.
The overarching concept involved in the basic plans discussed above, and in all estate planning for that matter, is the importance of dialogue and communication between spouses and other family members at the time the estate plan is being prepared. The underlying motivations for the components of a sound estate plan, including the charitable component, should be explored, understood, and expressed in consultation with advisors. Attorneys, financial planners, and even gift-planning officers are key individuals in seeing to it that the donors’ needs regarding each other and family members, as well as their desires regarding charitable gifts, are blended seamlessly in the plan. After all, successful wealth transfer is a long-term process that does not end with crafting a technically effective plan—it begins there.
As always, we invite your inquiries.