Roger and Janet Fisher of Kansas City recently found unexpected inspiration in their beloved Nelson-Atkins Museum of Art where they’ve been members and volunteers for decades.
It netted them some tax breaks.
About two years ago the Fishers decided to take their love for the iconic Kansas City art institution to another level by making the Nelson the beneficiary of their entire estate.
“It was kind of a no-brainer,” Roger said.
“We love the Nelson,” he said. “We have no kids. And we know we can put our money where we want it to go.”
Including fine arts institutions and other favored charities in estate plans appears to be growing, even among families with children, say followers of philanthropic trends. Long term federal surveys suggest that numbers of those 55 and older who include charitable bequests in their estate plans have risen by approximately one-fourth, to about 10 percent of the population, since 1998.
There are myriad reasons why. There are more childless couples in the population. Parents and grandparents increasingly seem to want to encourage a sense of giving back to society. Federal and state tax codes also encourage charitable impulses. And financial services providers have created whole boxes full of trusts, annuities and other tools to accommodate charitable wishes in virtually any household situation.
The only really big decision left for donors, Roger Fisher said, is choosing who gets the money.
“You want to pick someone who will be around awhile,” he said.
The tools donors can use to provide for their favorite arts organization or other charity range from the very simple to the very sophisticated, said Kyle E. Krull, an Overland Park estate planning attorney whose law offices bear his name.
The simplest way to provide for a museum, theater or other organization after your death is to liquidate an investment and bequeath the cash, Krull said. But that also is the least tax-efficient choice, because capital gains and other potential income taxes can trim as much as 40 percent of the gift’s value before the intended beneficiary gets what’s left.
“Leaving stocks or other investments that have appreciated in value directly to a charitable institution is better, because the charity pays no income tax and will get every penny,” he said.
Or you can take a few extra steps and create what is called a charitable gift annuity. To do that, you donate your gift to the arts or other charity now to receive all the tax and other benefits that the gift might provide. In return you also will receive an annuity, or lifetime income stream. How much that will be will depend on the size and value of your gift, how many people (no more than two) receive the income, and your age. This income will be taxable.
Climbing higher up the ladder of sophisticated planning choices brings you to two additional, more flexible choices – charitable remainder trusts and donor-advised funds. These essentially have become Swiss Army knives of charitable estate planning.
Donors create charitable remainder trusts, or CRTs in industry shorthand, to stash in them the assets they intend to leave to arts organizations or other charities later. Long-held assets that have grown in value over time are the best candidates for CRTs, Krull said. That is because you would pay capital gains and other taxes on them, but the CRTs don’t because the assets are going to a charity.
Donor-advised funds are basically tax-friendly savings accounts where you can store future charitable contributions and claim tax benefits now before making actual contributions later.
These tax-advantaged giving plans all share one important trait that you need to remember when planning, creating and funding them, said Dan Dorsch, of the Dorsch Law Firm LLC in Overland Park.
“They are irrevocable,” Dorsch said. “Once you’ve given an asset to charity, you can’t change your mind and take it back.”
That limitation aside, however, CRTs and arrangements like them, offer extremely flexible choices for managing investments, tax obligations and fine-tuning income streams.
And, if you want to leave money to heirs after you die and your arts organization or charity gets the asset you donated, there is a trust for that too, Dorsch said.
“It’s called an insurance preservation trust,” he said. You put life insurance in a trust so that the policies pay your heirs when the arts organization or charity gets the asset from which you previously received income.
Donor-advised funds are extremely flexible arrangements that provide flexibility for people and families at all income levels to manage their giving plans, said Debbie Wilkerson, president and chief executive of The Greater Kansas City Community Foundation. The foundation shepherds some 3,000 such donor-advised funds.
Conceptually, the funds are as simple as savings accounts to run. You put money in, and take tax breaks, when you want to, then make the donations when you choose, even if that is later, she said.
Donor-advised funds also can be a good way to encourage future generations to continue supporting your favorite arts or other philanthropies, Wilkerson said “You can appoint your children as advisors to help interest them in philanthropy.”
Donors need to remember that there are all manner of advisors, specialists and resources to help them through the mechanics of these sometimes complex arrangements, said Jan Leonard, senior vice president and managing director of UMB’s Fine Art Management Services in Kansas City.
Your more important role as a donor “is to learn everything you can about the organization, about its business organization and its long term strategic plan,” Leonard said.
“It’s a non-profit, but it also is a business,” she said. “You want to start a relationship that makes (your donation) much more successful.
“Your estate plan isn’t complete otherwise,” she said.
–Gene Meyer
