Balancing Family and Charitable Legacies

 

If you are blessed with considerable wealth, you are probably able to provide significant monetary legacies to your heirs and still be able to create legacies at your favorite charities. If you have more modest wealth, it may not seem possible to do both. However, some people in that situation, after considering the following, have concluded that they could, after all, leave a charitable legacy.

• The charitable legacy could be delayed. Certain assets would be committed to charity, but first income would be paid to heirs, either for life or a term of years. Suppose, for example, that a person wanted eventually to establish a named endowment with assets totaling about $500,000 in value but did not want to deprive heirs of income from those assets.  One possibility would be to designate $500,000 of estate assets to a charitable remainder trust that would pay heirs either for as long as they live or for the next 10 to 20 years, by which time they would have other sources of income. When the trust terminates at the end of the stipulated period, the remaining assets would fund the endowment. Another instrument that could be used if the donor wants beneficiaries to have fixed payments for life is a gift annuity.

• The cost of the charitable legacy could be reduced through tax savings. If a charitable legacy of $100,000 reduced taxes otherwise payable by $46,400, then the total legacy to heirs would decrease by only $53,600 rather than $100,000. All charitable bequests qualify for a tax credit on the final income tax return. Likewise, gifts received by a beneficiary designation from an RRSP or RRIF, or a life insurance policy, result in a tax credit. Thus, giving some remaining retirement assets to charity and giving to heirs other property not subject to tax upon distribution, might have a relatively minor effect on the total legacy intended for heirs.

• The legacy to heirs is more than money. A healthy community consisting of strong educational institutions, good health care, performing and visual arts, a protected environment, opportunities for the struggling to better their condition, and religious options is also part of their legacy. Gifts to these various causes should not be viewed as depriving heirs of part of their inheritance but rather as another form of their inheritance. 

• Leaving a legacy for others sends a powerful message to heirs about social responsibility and can stimulate them to follow this example.

• How to divide one’s resources among heirs and charities is, of course, an individual decision, and it depends on financial circumstances. In some cases, the needs of heirs simply preclude any charitable legacies, however much the person might like to arrange them. This is understandable, especially if total net worth has shrunk considerably, for family needs must always have the highest priority.  Still, many, even those with modest wealth, believe that the responsibility for sharing outside the family circle applies to their estates as well as to lifetime income, and some commit a certain fraction, 10 percent, for instance, for the wider world.