When Eralda Kogan moved to Santa Barbara with her husband, Gregorio, in 1969, she became involved in several local charities. She witnessed firsthand the power of nonprofits to make our community a better place. Throughout her life, she demonstrated her convictions through charitable donations to several nonprofits.
After her husband passed away in 1978, Eralda wanted to make sure her donations would continue to her beloved causes after her demise. So, she decided on the most popular and easiest way to leave her legacy: a bequest. She included 12 nonprofits in her will. Eralda felt glad about her decision, knowing it would allow her to continue to make a difference through her much loved charities.
Bequest Makes Far-Reaching Impact
Eralda passed away in September of last year after a rich and fulfilling life of 93 years. The reading of her will revealed she included bequests to 12 local nonprofits from her $9 million estate. Her bequests enabled organizations addressing such causes as cancer research, animal welfare, natural sciences, food disbursement to the hungry, care for the elderly, promotion of literacy and promotion of the arts to enrich their important work in our community.
I spoke with Executive Director Heidi Holly at Friendship Center, which delivers services to seniors and their caregivers, regarding the powerful impact that Eralda’s bequest would have on the many nonprofits that benefited from her legacy. Heidi has this to say about the significant impact bequests can have: “Giving a bequest or any type of planned gift is so important because it helps sustain the delivery of critical services many families and individuals depend upon. These donations make a strong impact on our entire community. We are so grateful to these generous angels.”
She says one of her favorite quotes is from Winston Churchill: “We make a living by what we get, but we make a life by what we give.”
Bequest Is the Most Popular Method of Planned Giving
Last year (2012), individuals gave $230.91 billion to nonprofits, an increase of 4.2 percent over the previous year. Giving through bequest continues to be the most popular method of planned giving, increasing 8.7 percent over last year for a total of $25.5 billion (GivingUSA).
The positive increases in individual charitable giving together with the increases in bequests to nonprofits are reason for nonprofit celebrations. However, considerable room for growth exists. Forbes reports that 65 percent of Americans do not have a will. Those without a will report they don’t think they have enough assets to warrant a will. Others say they don’t want to spend money for an attorney to draft a will. Ironically, without a will the state creates an expensive plan for a would-be donor’s assets.
Not surprisingly, older Americans (77 percent over age 55) are more likely to have a plan for disbursement of their assets than younger people. Studies show no noticeable difference in planning between men and women, but Americans with more education were far more likely to have planned.
How a Charitable Bequest Works
Many people want to use part of their estate to help charities they believe in — leaving a legacy of helping out the less fortunate, nurturing the arts or supporting other important causes. There are numerous ways to leave money for charity while still getting significant tax breaks, and in some cases generating income for you or your family while you are alive. One of the simplest ways to make sure your charitable legacy lives on after you are gone is a bequest — a gift to charity at your death, typically made through your will.
A recent article in the Wall Street Journal explains that making a bequest reduces the size of your estate, effectively leaving less money subject to estate taxes. Another advantage: You can change the provisions in your will, including how much to donate and to whom, anytime before your death. But because a bequest becomes effective after death, donors can’t enjoy an income-tax deduction for the gift.
Still, most people leave money to charity for reasons beyond tax savings. In 2010, when the federal estate tax disappeared for a year, charitable bequests nevertheless rose over 2009 by an estimated 16.9 percent.
Be Sure to Discuss Your Plans with the Charity and Your Family
It’s best for donors to discuss plans with the charity in advance, so it can be prepared for the money and make plans for how best to use it, say advisers. It also is smart to talk with family members if you plan to make a bequest, so they understand why the money is going to the charity and not to them.
Additional Ways to Give to Charities
One particularly tax-efficient way to make a bequest is to donate part or all of your regular individual retirement account to charity by designating a charity as a beneficiary. Bequeathing an IRA to charity can save your heirs income taxes that they otherwise might owe on an IRA’s required minimum distributions, as well as reducing the size of your estate.
Some charitable vehicles, such as charitable remainder trusts and charitable gift annuities, allow you to support a charity after your death while generating an income stream — and even income-tax deductions — during your lifetime. These tactics are particularly smart for donors worried about maintaining cash flow after making a gift. Speak with your financial adviser to find out how this approach may benefit your estate plan.
Your financial adviser can also explain ways you can leave a bequest to your favorite charity without reducing the amount you leave to your heirs. This is called a Wealth Replacement program and it uses insurance to allow a donor to leave a major gift to a nonprofit without disinheriting their family.
Make Your Plan Today
Like Eralda Kogan, you can significantly impact your favorite charities by leaving a bequest. Whether you consider yourself to be rich or poor or somewhere in between, it’s always better for you to decide how to disburse your assets rather than leave it to the state. So make your legacy plan today and make a difference.
— Dr. Cynder Sinclair is a consultant to nonprofits and founder and CEO of Nonprofit Kinect. She has been successfully leading nonprofits for 30 years and holds a doctorate in organizational management. To read her blog, click here. To read her previous articles, click here. She can be contacted at 805.689.2137 or cynder@nonprofitkinect.org. The opinions expressed are her own.