For many clients, estate planning decisions are easy. These clients are your typical “nuclear family” — a married couple (no previous marriages) with one or more children of the current marriage. As I said, typically, these folks have pretty easy estate planning decisions. The estate is left to the surviving spouse and then to the children equally.
But what about the many people that don’t fit into this classic category? What do they do?
Sure they may have friends or extended family that they’d like to provide for, but many do not. For these folks, their options are relatively limited and usually involve charitable giving. Perhaps you are like many of my clients; you know you want to be charitable in some form, you’re just not sure how.
Most donors want to support one or more charities, but one comment I get is that they don’t want to give them too much money all at once. They are concerned the charity will squander it or spend recklessly.
Clients often ask about giving to the charity over time or even setting up their own “private” charity to distribute the funds. Unfortunately, there are problems with both of these options.
Anytime you require that a trust distribute money over time, the trust must remain “open” for that period of time. This means CPA fees, attorney fees and taxes must be filed. Of course, all of these tasks take money and can seriously reduce the value of the trust over time. I usually advise that we explore ways not to keep the trust open for long periods.
If you are going set up your own foundation, you better have a lot of money. I can’t give you a dollar amount of what that is, but needless to say it is usually more than most of my clients want to give to a charity. Setting up a non-profit involves lawyers, accountants and worse yet, the approval of the IRS. For this reason, setting up your own foundation for charitable giving doesn’t work for most people.
One way to go that avoids all of these issues is the use of a fund held and administered by a local organization like the Community Foundation of Sonoma County. You can create a Donor-Advised fund where you specify an amount to be given to the fund at your death, then you specify exactly how it is to be used. For instance, you could set up a fund that funds scholarships for architects based on need or performance in school. You could have the fund donate 20 percent of its value to a local food shelter, thereby stretching out your generous contribution. You could direct the fund to only distribute a share of the income generated by the fund so the fund not only lives on forever, but increases in value each year. You can direct what area the money is used, i.e. the Sonoma Valley, Kenwood, etc. The possibilities are limitless.
Because the organization holding these funds pools all the thousands of funds they have together and manages them as a group, the costs associated with managing them is greatly reduced and there is virtually no organization costs.
Contact an estate planning attorney today to learn more about these types of charitable funds and whether or not they are appropriate for your situation.
Eric S. Gullotta, JD, CPA, MS (Tax) focuses on estate planning and taxation law. His office is located at 232 West Napa Street, Suite A, in Sonoma. Contact him at 938.7234 or visit Gullottalaw.com.