New York Estate Planning Lawyer Blog

On Tuesday we discussed a few ways that our New York estate planning lawyers incorporate charitable giving into strategies to reduce taxes during inheritance planning. Of course, for most local families who want to give some of their wealth away, the motivation is not just to save tax money for themselves or their heirs in the process. Instead, as an interesting new article discussing the matter in Financial Planning noted, there are many emotional connections behind giving back. A mix of empathy, gratitude, and the desire to make an impact for others are often behind philanthropic efforts included in New York estate plans.

One sociologist suggests that empathy is at the root of most charitable giving--the ability to actually experience the struggles faced by others. Many donors providing support to certain charitable causes see much of themselves, their children, parents, or other family members in those that they are helping. The ability to care for others as an extension of ourselves is one of the most valued human abilities, and many of our clients share that attribute, wanting to incorporate it as part of their long-term planning.

The time that many are conducting estate planning is usually a time when they are winding down their efforts to collect more wealth. As a result it is a natural opportunity to consider other objectives, goals, and wishes. A sociologist familiar with this time in life explained how residents "then face the question of how to live next and impart to their children a moral biography. Most will want to give back because giving is a natural source of happiness." When reflecting on how far one has come in life, many consider that they themselves were helped along the way. Giving aid to others (financial and otherwise) is a way of returning the help one personally received at a time when it was needed most.

Another consideration is the effect that particularly large inheritances might have on offspring. Researchers have found that many wealthy individuals fear the effect of a large inheritance on their children. Increased charitable giving seems like an appropriate action in those situations.

At the end of the day, providing help to others is perhaps the single most important way that any of us can shape the world around us. At the same time it is a way of meeting our own needs as well. The Greek word from which we derive philanthropy, "philia," actually means "mutual nourishment."

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New York estate planning is primarily concerned with passing on assets to family members and saving taxes in the process. While the inheritance planning portion of the effort may seem straightforward, there are many considerations involved. It is much more than simply saying that John gets the house and Jane gets the car. When done right, the process should include consideration of many issues like what legacy one wishes to leave, how they'd like their children to remember them, and what values they wish to pass on. For many families this process involves leaving some assets to a charity of choice.

A story in this weekend's Western Farm Press emphasized how charitable giving is an important part of estate planning for many families. It was a follow up to an article that had been recently written about the value that farm families have in visiting an estate planning attorney to keep a farm alive in the future. The latest story noted that including valued charities in one's inheritance is a helpful way do some good while saving on taxes in the process.

It was explained how using these charitable donations in combination with estate tax exemptions can go a long way to pass along assets to desired family, friends, and causes without losing it to the government. Many assets that have appreciated significantly in value can be given to charity which may allow them to avoid being eaten up by capital gains taxes. Also, retirement savings, like IRAs, can be included in estate planning efforts to benefit charity. This often helps to reduce or eliminate tax liabilities. When done properly it can increase the funds that are going to heirs while also increasing the amount provided to a charity.

Perhaps the most common way that our attorneys work with clients on charitable giving is via use of charitable remainder trusts. These legal entities are unique tax-exempt irrevocable trusts that often provide the best avenue to transfer cash or assets to a charity of choice. Upon the trust's creation, assets are transferred into it. The one who created the trust is then allowed to receive income from that trust (either for life or a set number of years). Whatever is remaining at the end of that income collection period is then given to the named charitable cause. In fact, in certain circumstances the trust income may be paid over the life of one's spouse or children. There are limits on payout rates and other tax implications, and so it is always important to have experienced legal advice to explain whether or not one of these devices in useful in your specific situation.

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In many cases the most difficult aspect of conducting proper New York estate planning is ensuring that everything necessary is taken into account. Experienced New York estate planning lawyers usually know what options make the most sense in any given situation, but those plans are less effective if certain aspects of a community members' situation are not accounted for within the overall plan. Few individuals forget to discuss assets like bank accounts and real estate. Fewer take the time to conduct less common planning needs, such as ensuring proper business succession details are in place.

Another often overlooked planning area involves art and antique collections. Last week Wealth Management discussed some tips for art succession planning. The authors noted many families have considerable wealth invested in their antique or art collections, but many fail to take much planning care with these items. The articles notes that "Many don't realize the true value of their 'stuff,' thinking that the antique toy collection, family jewelry, or painting passed down by grandpa have no significant worth for which succession planning is essential." Often that idea is misguided. A new Social Welfare Institute study from researchers out of Boston College found that in a few decades inter-generational asset transfers will total $41 trillion, of which roughly 10-13% will be art and antiques.

Considering that sizeable sum, it is incumbent that these objects be properly accounted for in all estate plans. Failure to do so is a serious preparation mistake. Not accounting for these assets may result in significant tax liabilities. Also, without proper evaluation there may be large discrepancies in the asset allocation to heirs--with one child getting much more than another accidentally. Even worse, heirs may dispose of collectibles at rates much less than their actual worth if they do not suspect something is valuable and are not given any guidance on its worth.

To avoid these problems, residents should follow a few basic steps. For one thing, an up-to-date art and antique inventory is essential to start the planning. For more advanced collectors, specially designed software can be purchased to better keep track of these items. Also, all items should have a qualified appraisal and valuation. All purchase and sale records regarding these items should be maintained adequately. When meeting with an estate planning attorney, it is important to keep them aware of the extent and value of these collections. The advisors will be able to explain what strategies are most appropriate. For example, depending on long-term wishes, an irrevocable trust or charitable remainder trust might be logical options.

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Our New York estate planning attorneys have spent decades helping local families make long-term preparations for their estate. Legal and tax rules must be accounted for in all significant property transactions, even when one is giving money away. As a Wall Street Journal story this weekend explained, it can actually be quite challenging to properly plan for a charitable gift. If professionals are consulted, residents can often leave money in ways that provide significant tax breaks, particularly if they account for the ever-changing estate tax rules.

When conducting New York inheritance planning, many community members indicate an interest in leaving assets to support a favorite cause, like helping the less fortunate or nursing the arts. When the gift is made at death it is known as a "bequest." A bequest lowers the money subject to estate taxes; however, donors cannot enjoy an income tax deduction for the gift if it is made at the time of death. If a gift is given while the individual is alive then an income tax deduction can be taken. Yet, lifetime charitable gifts are irrevocable and an individual cannot change their mind about the donation as they might be able to if they were planning a bequest.

Of course, many residents leave funds to charity for reasons beyond taxes, but there is no reason why community members should not take stock of the tax consequences when planning to give money to these causes. In 2010, the year when there was no federal estate tax, charitable bequests increased by nearly 17%. That year donations totaled just shy of $23 billion nationwide according to information published by the Giving USA Foundation.

The New York estate planners at our firm know that there are many ways provide money to favorite non-profit causes. For example, part or all of an individual retirement account can be given to charity by designating it as a beneficiary. In addition, it is often helpful to use special legal tools like charitable remainder trusts to support a cause after death while generating an income stream while still alive. They are helpful for those who are eager to help the charity but have concerns about maintaining cash flow. The basic idea behind these trusts is that assets are set aside in trust with income paid to the donor (or family) for a set number of years or until the donor dies. At that point the remaining money goes to the designated charity. When using these trusts the donor may also be able to receive a tax deduction up front for the expected donation.

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