Charitable Giving and Your Estate

Many people I work with to plan their estate want to make some type of charitable gift. Charitable giving through a person's estate plan falls into three categories: a simple bequest through a will, a charitable remainder trust or a charitable lead trust1. Most people want to make an altruistic donation to some cause that holds a special place in their heart. However, for the more sophisticated estates, charitable giving can be a valuable estate tax planning tool.

The simplest and most popular form of charitable giving is a bequest through a will. Basically, there will be a clause in the will that says "I give X amount of money to charity Y." If the estate plan is more sophisticated, the bequest could be based on a percentage of the estate's value or a part of the residue of the estate2. Like all charitable bequests, it is tax deductible.

A second popular type of charitable gift is called a charitable remainder trust or "CRT." A CRT offers flexibility. It can provide an income stream for life, or a term of years, to the donor and also provide significant tax benefits to the donor and the donor's heirs. It is called a charitable remainder trust because the charity receives the remainder of the asset after the term.

A CRT is an irrevocable, tax-exempt trust. Assets, like bonds, mutual funds, stocks or real estate, are transferred into the CRT. The assets provide income to the donor for a specific period of time (i.e., the donor's lifetime or a term not to exceed 20 years). At the donor's death or term, the remaining assets will be turned over to the charity.

A CRT can offer great tax benefits if the transferred assets have appreciated and would cause large capital gains taxes on the sale of the transferred asset. But, if the transferred assets go to a charity through a CRT, the trustee may be able to sell the asset with no gift, estate, or capital gains tax consequences for the donor. While the income stream from the asset will generate a taxable liability, the donor can take the charitable income tax deduction.

There are numerous restrictions related to designing a CRT. Speaking to an estate planning attorney in working through designing a CRT is very important to ensure compliance with the tax code.

The last most popular type of charitable gifting strategy is the charitable lead trust or "CLT." A CLT is essentially the opposite side of the coin of a CRT. The donor creates an irrevocable trust for a set term of years. Each year, payments are made from the trust to the donor's designated charity/charities. When the term is up, whatever is left of the asset is transferred to a designated beneficiary.

It is called a lead charitable lead trust because the charity is entitled to the lead (or first) interest in the trust asset and the noncharitable beneficiary receives the remainder. Handling assets in this way can shelter the assets' appreciation from estate taxes. But, also like a CRT, designing a CLT is a sophisticated tool with numerous issues that need to be addressed. A potential donor should talk with an estate planning attorney to ensure tax compliance.

When a testator is planning their estate and the testator has the means to donate to charity, the testator should consider making a charitable contribution. In addition to the altruistic benefits a testator gains, there can be significant advantages to the testator's estate and income tax liabilities.

Basics of Estate Planning: What are the Types of Wills?

When meeting with an estate planning attorney, most new clients will be thrown a great deal of legal jargon describing different types of estate plans. Hopefully, the attorney will thoroughly explain all the options. However, having a basic, working knowledge of the jargon will aid anyone in creating their estate plan. Here are some of the basic types of wills of which a person needs to be aware. Unless specified, Virginia, Maryland and the District of Columbia recognize some form of the type of will listed:

  • Oral Will - is a will that has been delivered orally to witnesses, as opposed to the usual form of written will. Oral wills are only recognized in a few states. Generally, oral wills require a presence of fear of death. Oral wills only apply to personal property. Maryland does not recognize oral wills and Virginia and DC do but under extremely strict requirements.
  • Holographic Will - is a will and testament that has been entirely handwritten and signed by the testator. It does not meet the normal validation requirements of a will that must be signed by witnesses attesting to the validity of the testator's signature and intent. Many states recognize the use of holographic wills but only under certain conditions. Virginia, Maryland and D.C. each recognize a limited use of holographic. Each state has specific criteria for acceptance of a holographic will.
  • Joint Will - is a single document executed by more than one person, usually husband and wife, to pass their estates using identical provisions for each spouse. In most joint wills, a couple bequeaths all their property to each other. Upon the death of the surviving spouse, the surviving spouse's property passes according to provisions that were agreed upon by both spouses and contained in the joint will executed by both of them. A joint will is in effect unless the surviving spouse revokes the will.
  • Mutual Wills - are any two (or more) wills which are mutually binding, such that following the first death the survivor is constrained in his or her ability to dispose of his or her property by the agreement he or she made with the deceased. A surviving spouse that cancels the will would be considered breaching a contract.
  • Mirror Wills - are prepared when a couple want to make almost identical Wills leaving, for example, everything to each other respectively and thereafter to the children, or where there are no children, to a named beneficiary. They must be individual Wills, so in effect they are separate legal documents with similar content. It is also known as a "sweetheart" will.
  • Conditional/Contingent Will - only go into effect when a certain act or condition happens. In the movie, Brewster's Million, in which Monty Brewster needed to spend $30 million to inherit $300 million is an example of a conditional will. Courts view conditional wills with a great deal of suspect and might void conditional wills.
  • Self-Proving Will - is not a will but a self-proving affidavit attached to a Will that certifies the witnesses and testator properly signed the Will. A self-proving will makes it easy for the court to accept the document as the true, original document, avoiding the delay and cost of locating witnesses at the time of probate. Only Virginia uses self-proving affidavits.
  • Testamentary Trust -is a trust which is created through the probating of the will and is distinguishable from an inter vivos trust, which is created during the settlor's lifetime. Testamentary trust literally means a trust in a will. A will may contain more than one testamentary trust and may address all or any portion of the estate.
  • Revocable Living Trust - Inter vivos trust/revocable trust/loving trust/ family trust is an agreement that determines how a person's property is to be managed and distributed during his or her lifetime and beyond. A revocable living trust separates the equity title and beneficial title of property to limit the impact of probate.
  • Pour-Over Will - is a particular type of will used in conjunction with a revocable living trust. This kind of will "pours" any property the deceased still owned at the time of death into the trust that the person set up during his or her life.
  • Codicil - is an addition to a will. It is usually another document and is used if you don't want to write a completely new will but want to make minor changes to the will.

Hopefully, understanding some of the basic type of wills can ensure someone planning their estate opts for the correct will.

Estate of the Month: The Impact of Student Loans on the Estate

A few months back, USATODAY reported that total student loan debt of approximately 850 billion exceeds total credit card debt of approximately $828 billion in revolving credit, including credit card debt in this country. One of the most important questions a young family has, after asking about their children, is how student loans are dealt with in probate. There are two recent stories that provide some guidance to those with student loans and what steps you need to make to protect your estate against student loan claims.

The first is the story of Christopher Bryski. Mr. Bryski died of a brain injury at the age of 25. His parents co-signed his loan for college. Upon his death, his parents were forced to make monthly loan payments for their son's loans.

Student loan debt is extremely hard to discharge, and the recent federal reformation of student loans did not address situations like Mr. Bryski. Generally, federal subsidized student loans are dismissed though it depends on the loan. (You can learn more here on specific loans. ( But, private loans from companies like Sallie Mae or Wells Fargo do not have to be dismissed if a student passes away or becomes disabled. The cosigners, usually the parents of the borrower, are often required to pay off the loan's balance. Since 2006, two people cannot consolidate their loans together. In the past, if a two people consolidated their loans together and one of them died, then the surviving person was liable for the dying person's student loan.

To rectify this issue, in 2010 Senator Frank Lautenberg sponsored the "Christopher Bryski Student Loan Protection Act," to address co-signor's rights and create more transparency for those rights. The bill stalled and is awaiting sponsorship in the current Congressional session. Thus, currently, private loan debt is handled like any other claim by a creditor on an estate.

The second story is of a woman who died shortly after graduating from college with $45,000 in student loans. The lenders decided to file claims against her estate and many reporters thought they meant her parents. However, it is likely the blogger does not understand probate. The lenders probably filed claims with the personal representative (mostly like a parent in the case of a recently graduated student) during probate to settle their claims and the parents were not personal liable for the loans.

In this case, most of the lenders thought discretion was the better part of valor and decided to dismiss the claims. But, it is the lender's right to make that claims, and a news organization is not always around to give the lender a black eye.

Student loans are creditor's claims against your estate, like any other claim, and it is important to understand who will be liable, or not liable, or if the loan is dismissed upon the borrower's death. I doubt most people who have student loans co-signed with their parents, desire to have their older parents forced to pay off those loans if they pass away.


1 There are other charitable giving strategies, including creating a private or family foundation, donor advised fund or pooled income funds.

2 The "residue" of an estate is the amount remaining after all costs, debts and taxes have been paid and after all monetary and specific bequests have been satisfied. This form of charitable bequest can be especially appropriate if you want other bequests to have priority.

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