Tips for Including a Charity in Your Estate Plan

Thinking about including your favorite charity in your estate plan? Here are four simple, but important, items to consider.

Name and Taxpayer Identification Number

Start by obtaining your charity’s legal name and unique nine digit taxpayer identification number (also known as an “Employer Identification Number” or “EIN”). Your charity can provide you with this information, or it can also be obtained online via websites such as www.guidestar.org and www.charitynavigator.org. Though simple, do not overlook this critical step! Many charities have similar names. Large national charities often have local chapters with their own distinct names and EINs. If you wish to benefit the local chapter, but name the national organization, your local chapter may never benefit.

For extra credit, double-check the charity’s name, EIN, and charity status with the Internal Revenue Service by entering the EIN into the Service’s web­site at http://www.irs.gov/Charities-&-Non-Profits/ Exempt-Organizations-Select-Check. And don’t forget to print a copy for your records.

How Should the Funds Be Used?

You can specify how a recipient charity can use (or not use) your bequest. Charitable gifts limited to a specific purpose are known as “restricted” gifts. Types of restrictions include:

• Geographical (Example: This bequest shall be used for the exclusive purpose of furthering XYZ Charity’s general charitable purposes in Marion County and Polk County, Oregon.);

• Specific program or area of interest (Example: This bequest shall be used for the exclusive benefit of XYZ University’s College of Forestry Management.);

• Scholarship creation (Example: This bequest shall be used for the exclusive purpose of creating a scholarship fund which shall be known as the “Jane Doe Scholarship Fund,” to be administered under the following provisions…)

• Endowment (Example: This bequest shall be added to XYZ Foundation’s Endowment Fund, to be administered under the terms of that Fund. NOTE: some charities have an endowment fund with a separate name and EIN.); and

• Prohibitions (Example: This bequest shall be used for the XYZ University’s general charitable purposes, except that no part of this bequest shall be used to fund cage-fighting intramurals.)
• Use caution and prudence when restricting bequests to a specific purpose! Restricted bequests can be problematic for charities if not carefully thought-out and drafted. Discuss your desires with the charity in advance to ensure that the intended purpose is clear to the charity and logistically workable.

• Keep in mind that charities appreciate and need unrestricted bequests to handle day-to-day operations. Consider leaving at least a portion of the bequest as an unrestricted gift to help “keep the lights on” while your charity pursues your specific desires.

Choose the Best Vehicle for Delivering Your Gift

A charitable bequest can be included in your will or trust. You may name the charity as a beneficiary of a life insurance policy, annuity, or retirement account (IRA, 401k, 403(b), etc). Funding the bequest with a pretax annuity or retirement account has the added benefit of saving income tax that would otherwise be triggered if the account were distributed to an individual.

Notify the Charity of Your Future Gift

Finally, consider informing your charity of the future bequest. I have heard a number of charities lament “We wish we could have told her ‘thank you’ while she was alive!”

Many charities have programs to recognize future donors and newsletters to keep those donors updated on the charity’s developments and events. Your charity is excited about its mission and would love to share that excitement with you. Notifying the charity also allows the charity to receive feedback from you regarding the charity’s mission and the programs you are particularly passionate about, which, in turn, can influence the direction and future policies of the charity.

Parting Thoughts

When including a charity in your estate plan, take time to think through these four items. Discuss them with your family, estate planning attorney, CPA, financial adviser, and charity. Doing so will ensure a final gift that efficiently meets your wishes and benefits the causes important to you.