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Charitable giving must be done with due care

An important part of estate planning for many people, particularly the wealthy, is philanthropy. Being able to leave a legacy behind for a beloved charitable organization or favored cause is a priority for these individuals.

When structuring an estate plan, it is vital to think realistically and strategically in order to maximize the benefit that your assets can offer to a charity, shelter, church, group, non-profit, club, fund or program that is close to your heart.

Before getting started on an estate plan that features charitable giving, you should ask yourself the purpose and ultimate goal behind the bequest. For example, is this a gift to a family in need? Do you want to inspire others to give to charity? Is your goal to set up a legacy of philanthropy or a foundation in your name? Different purposes should be met in different ways, so having an idea of your end result will help determine the best method to reach it.

Effective philanthropic giving not only provides funds from the donor to the beneficiary organization/club/etc., but it also considers tax consequences (and accounts for those) as well as maximizing the benefits offered. For example, a one-time charitable bequest of $1,000 would be very helpful for a local animal shelter. If that money were put into a trust and wisely invested for a period, with proceeds and income going to the same shelter, then the original investment of a one-time gift of $1,000 could turn into $10,000 in just a few years.

Which is the better choice? Well, that depends on a number of factors, all of which must be duly considered. These include:

  • The state of the donor's finances, and how different gift bequests will impact the overall estate
  • Recipient's immediate needs (Will they best be served by a one-time bequest, or an ongoing income? Donating to a fund helping victims of a particular natural disaster, for example, would likely be best in a single lump sum, but if money is going to a long-standing organization like the Red Cross or Habitat for Humanity, a sustainable income might be preferred.)
  • Tax consequences for both the estate and the recipient depending on different methods of asset transfer
  • Need for ongoing outside help or guidance (like a trustee or investment manager), depending on the way in which the gift is structured

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