Charitable Planning: A Case Study of Charitable Giving

Medical donation for a charitable foundation

Charitable giving can help you minimize taxes on your estate while supporting a cause that matters to you. Giving a sizable gift to a meaningful cause is a great way to create your Texas legacy, and it will benefit future generations. There are many ways to give to a charity, and it’s crucial to understand the tax implications of your choices. The expert attorneys at Davidson Law Group are here to help. In today’s case study, read about a client’s options for donating to a college and a non-profit organization.

Charitable Planning: Giving to a University 

Deborah Jones (“Debbie”) resides in Fort Worth with her husband and two dogs. She’s 59 years old and received two degrees from the University of Texas (Austin). She’s a hard-working, generous person who loves the Longhorns. She wants to give back to the institution that gave her unique opportunities to succeed. While she has no children of her own, Debbie had a strong desire to see future generations benefit from a world-class education. Before contacting the university’s investment management team, she consulted an estate planning attorney to discuss her options.    

Testamentary Gift

A simple strategy for Debbie is to make a charitable gift as part of her estate plan. Her will or trust can specify the purpose and use of her charitable gift, such as college professorships, scholarship funds, or medical programs. The advantage of Debbie’s testamentary gift is that it offers planning flexibility. Her gift is revocable, and she can modify it during her lifetime. 

Endowment Fund 

An endowment is a monetary donation that a university uses to fund its ongoing operations. The University of Texas had one of the largest university endowments in 2018 at $30.9 billion. Debbie wanted to contribute and sustain UT through her endowment gift. As a successful medical professional, Debbie’s goal was to support students who were also pursuing a career in the medical field. So, we helped Debbie set up a restricted endowment fund to be invested to produce income. Much to Debbie’s surprise, creating this fund also reduced her estate taxes.  

Related Post: Things You Should Know About Charitable Giving

Charitable Planning: Donating to an Animal Shelter

Debbie also has a passion for animal welfare and wanted to donate a portion of her estate to the Humane Society of North Texas. The shelter provides pet adoption services, vaccinations, humane euthanasia, and more. Debbie had chosen to make a general donation to ensure that there’s a safe place for homeless pets in the community. Still, some questions remained about the methods and benefits of charitable giving. What are the tax and legal repercussions? She sought answers from the Davidson Law Group. 

Many non-profits make it easy for donors to enter their amount and credit card info through an online portal. However, there were other strategies for Debbie to follow when making a donation that allowed her to gain something in return. Before she made a sizable gift, she sought the advice of an experienced estate attorney.  

How We Helped Debbie

At the Davidson Law Group, we identified and discussed the options that made the most sense for Debbie. We assisted her in determining the best charitable planning strategies and then developed an orderly plan. We reminded Debbie that her donation to the Humane Society would be tax-deductible to the fullest measure. 

Charitable Planning: When to Give

Next, Debbie knew that she could give to the animal shelter during her lifetime or in her will. Which was the better option? During her consultation at the Davidson Law Group, she learned that there are benefits for both decisions. 

Charitable Giving During Her Lifetime

Debbie could experience the joy of giving and receiving gratitude from the university and animal shelter for her donations. Debbie could have peace of mind as she knows where her money is going, and it will be invested for a good cause. The charitable funds can also qualify for a reduction on her personal income tax return. So, she’d receive more favorable tax consequences by giving during her lifetime. 

Related Post: Davidson Law Group Explains the Effects of Giving to Charity    

Charitable Giving Upon Death

Alternatively, Debbie could give a testamentary gift, such as an outright gift in her will or trust. A charitable remainder trust (explained below) can be established by Debbie’s will. If you’re looking to arrange a charitable gift annuity (CGA) through a will, it requires careful planning, so contact an estate planning attorney. 

Another option for Debbie is to create a retained life estate plan. For example, if she decided that her property would be great for an additional adoption center or livestock ranch, she can name the Humane Society to receive her real estate when she passes away. She could still receive tax breaks on her current income and retain full use of her property until her death.  

Charitable Planning: How to Give

We continued to explore the many charitable giving strategies with Debbie. Among them:

Charitable Trusts

A charitable lead trust (CLT) allows Debbie to make payments to the shelter during her lifetime. The rest of the assets go to her, her husband, or other beneficiaries when she passes away. When her family receives the remaining assets in the trust, they won’t have to pay estate taxes.  

A charitable remainder trust (CRT) allows Debbie to receive payments during her lifetime and give a share of the assets to one or multiple charities. Debbie could receive income until she passes, and then the remainder will go to one or more charities.

If you’re looking to pass property to a non-profit, consult our estate planning attorneys. We’ll help you draft the trust document and contact the chosen charity.  

Related Post: Charitable Trusts: Lead or Remainder?

Retirement Accounts

Debbie could name the shelter as the beneficiary of her retirement plan (Roth IRA, 401K, 403B). A retirement plan contribution can provide a gift to the organization that is not affected by the estate or income taxes. This means that Debbie’s retirement assets would pass directly to the animal shelter. It’s a simple step, but Debbie should keep her husband informed. She may need his written consent.    

Life Insurance

Next, a common arrangement is to gift a life insurance policy to a charity as a gift. In this strategy, Debbie would pay insurance premiums and the animal shelter is the policy owner and beneficiary. Upon her passing, the shelter would receive the life insurance proceeds.  

Establish a Private Foundation 

Debbie also considered creating a private family foundation to directly give to charity. She could manage the foundation and retain control over the investment of her assets. Additionally, Debbie could use foundation grants to support particular individuals who work at the animal shelter. If you’re considering gift-giving strategies, a private foundation is another method that may provide deductions on your income and estate taxes. However, it requires administration and works best for larger gifts and estates. 

Finally, Debbie expressed gratitude for the knowledge she received about each option, and she made an informed decision. Charitable giving was a win-win situation for both Debbie’s estate and the charity.

Related Post: What You Should Know About Donating Real Estate to Charity

Contact an Estate Planning Attorney Today

Whether it’s a church, hospital, non-profit organization, or a university, the Davidson Law Group is ready to help with your charitable planning. We can develop strategies for giving to a charity that best meets your objectives. For more information, contact our estate planning attorneys in Fort Worth, Allen, or Tyler. You can also check out our blog page for more estate planning case studies.