BEQUESTS TO CHARITIES AND ENDOWMENTS

Are you a non-profit seeking advice on an endowment you have been gifted? Or are you a person looking to give a portion or even all your assets to a charity once you pass? These prospects can lead to some questions. This article will outline how to handle receiving and leaving a bequest and/or endowment to continue your legacy. 

Why would someone want to leave their assets to a charity? 

There are many reasons someone may choose to leave their assets to a charity instead of a relative or friend. Primarily, those who choose to set up a donation to a charity in their name once they pass are usually involved or passionate about that charity. There are also benefits for having your assets transferred to a non-profit including tax deductions. 

In Pennsylvania, no Pennsylvania inheritance tax is assessed to charitable bequest whether intended as an outright gift or specific purpose or endowment.

How Do Bequests Work?

Setting up bequests to charities can be overwhelming. However, there are five easy ways that you can leave your estate to a charity of your choosing. 

1. First, you can complete a “charitable bequest” statement. This is a written statement in either your will or trust that details which assets, and how much of those assets that you would like to leave to the said charity. This provides clear and precise wishes once you pass. These statements make it easy for your friends, family, and even the charity to know your exact wishes once you pass.

2. Next, just like you can name a spouse, child, or family member as Beneficiary, you can name a charity as your Beneficiary. Charities can be Beneficiaries for accounts such as IRA, 401(k), or other tax deferred accounts. Therefore, once you pass, if the charity of your choosing is the only Beneficiary listed, they will receive the stated benefits. If you list more than one Beneficiary, you will have the option of stating what percent of your assets you want to go to whom.

3. Another option is to create a “Donor-Advised Fund”. This is a grant-making account held by a public charity. It is essentially an investment account for the sole purpose of donating funds at your direction. After the creation of this account, throughout your life you can make as many donations as you would like. This ultimately allows you to make a large tax-deductible gift in a single year without having to identify all charitable recipients right away. This is a great option for those whose health is turning for the worse quickly, but have wishes to leave assets to a non-profit.  

4. Lastly, there are two types of trusts that can be set up to clarify what assets you want divided. A “Charitable Remainder Trust” allows a portion of assets to be given to charity and a portion be given to you. When this account is created, a term is decided on. During this term, you receive a steady income from the account, however, when this term comes to an end, the remaining assets are passed on to the charity. Additionally, you will receive a charitable income tax deduction until you pass. 

5. The second kind of trust is a “Charitable Lead Trust”. When you transfer assets to a Charitable Lead Trust account, the charity receives a stream of income from the trust for a designated term. However, unlike the Charitable Remainder Trust, when this term ends, the assets transfer to your beneficiaries and not the charity. Yet, just like above, your beneficiary could be a charity, and the assets would go to the charity.

Nonprofit Endowments

It is important for nonprofits to understand endowments and how a donor is leaving their assets, since it determines how much and when the assets are transferred to the charity. Oftentimes, endowments help keep a nonprofit running to support their mission. Endowments must be governed by guiding documents, and identifying the key verbiage in these documents is crucial in ensuring that these donations are set up correctly.  

Pennsylvania is the only state that has not adopted UPMIFA in some form. Instead, Pennsylvania operates under a State statute named Act 141. In effect since 1998, Act 141 permits nonprofit boards to determine annually the amount of income available for spending from an endowment fund. The value of the assets under Act 141 is the average fair market value of the assets over a three-year period.

Should You Leave Bequests to Charity?

Ultimately, leaving bequests to a charity is a powerful way to leave behind a lasting impact on a charity you are passionate about. Even if it can seem overwhelming, it is a rather easy process to set up with the help of a legal team. The attorneys at Pyfer Reese Straub Gray & Farhat are here to assist you and guide you through the process of bequesting to charities. Contact us at 717-299-7342 to schedule a convenient appointment to discuss your estate planning needs at our Lancaster, Willow Street or Ephrata Office.