Charitable Estate Planning: A Christian Perspective

Why plan?

• Because we are responsible for our stewardship of resources

• Because we care about others around us

Estate planning problems in the Bible:

WastefulnessLuke 15:11-13. Jesus continued: “There was a man who had two sons. The younger one said to his father, ‘Father, give me my share of the estate.’ So he divided his property between them. Not long after that, the younger son got together all he had, set off for a distant country and there squandered his wealth in wild living.”

ConflictLuke 12:13-14a. Someone in the crowd said to him, “Teacher, tell my brother to divide the inheritance with me.” Jesus replied, “Man, who appointed me a judge or an arbiter between you?” Then he said to them, “Watch out! Be on your guard against all kinds of greed;”

1. Leave instructions such as rules to prevent wastefulness and disputes

2. Avoid taxes and expenses

Estate planning allows you to

Your Own Plan

The Government

Plan

Which do you have?

Do you want the “government plan”?

• Your spouse receives one-third of your separate personal property, children get the rest

• Your spouse can use one-third of your separate real property, children get the rest. (If no children, spouse gets ½, rest to parents and siblings.)

Texas Probate Code Ch. II § 38(b)

Do you want the “government plan”? Minor child or grandchild receives entire inheritance…

on his 18th birthday

Projected investment decision

Without a will, guardianship of minor children is decided in the courts

If you were leaving on a trip for three weeks, would you leave instructions for the person watching your things?

What kind of instructions can you leave?

Simple: Division, guardianshipComplex: Trust plans

Example instructions

• Maybe not in one lump sum

• Maybe for specific items – education or first house

Spendthrift protection

You can protect inheritance payouts from creditors, divorce, or heir borrowing against future income

“A very rich person should leave his kids enough to do anything but not enough to do nothing”

- Warren Buffet

• Instead of guaranteed income, match dollars earned.

• Make income contingent on passing drug tests.

Do you want the “government plan”?• I want all of the contents and

values of my estate to be made public in court records.

• I want any interested salespeople or swindlers to be able to find out exactly how much each of my heirs is receiving.

• I want to pay the court costs and attorneys fees associated with a probate proceeding.

You can choose to pass assets privately through non-probate transfers or living trust

Do you want the “government plan”?

I want to pay the maximum estate taxes knowing in extreme cases this could leave as little as 20.25% of my estate after Dec. 31, 2012.

Estate taxes (55%) plus generation skipping taxes (55%) for a large estate being given to grandchildren with previous gifting combines for a 79.75% tax rate

Do you want the “government plan”?

I don’t want to decide my medical treatment or have anything to say about who will make medical or financial decisions for me if I am incapacitated.

Do you want the “government plan”?

I want to leave absolutely no money to any church or Christian organization

If you want to leave money to a church or nonprofit organization, there are ways to get immediate tax benefits

Giving a church or charity the irrevocable right to own farmland or a home after death by a remainder deed is immediately deductible

Deduction for remainder interest in $100,000 of farm land by age 59 donor

1.8% (Dec 10)

$68,23311.6% (May 89)

$15,684

Donor CRT Charity

Initial Transfer

Anything Left at Death

Payments During Life

A Charitable Remainder Trust allows a donor to set aside money from which

he takes payments, with any remaining amount going to charity

Donor CRT Charity

Initial Transfer

Anything Left at Death

Payments During Life

The donor gets an immediate tax deduction for the present value of the

amount that may go to charity

There are no capital gains taxes when the donor transfers to the CRT or when

the CRT sells the asset

2011 2012 2013 2014 2015 … Death

Charity

…

A Charitable Gift Annuity trades a gift for a lifetime

income

2010

Typically larger

organizations like LCU

Example donor ages & rates July, 2010, American Council on Gift Annuities

30 3.7%40 4.1%45 4.4%50 4.8%55

5.0%60

5.2%65 5.5%70 5.8%75 6.4%80 7.2%85 8.1%90+ 9.5%

2011 2012 2013 2014 2015 … Death

Charity

…

No capital gains tax is paid when

transferred to charity

2010

2011 Qualified Charitable Distribution for IRAs

Early distribution (before 59 ½)

Regular distribution (59 ½ to 70 ½)

Required minimum distribution (after 70 ½)

After age 70 ½ participants must take required minimum distributions (account balance / remaining life expectancy) or pay 50% penalty

$10,000

$10,000 incomeIRA

Giving after 70 ½

For 2011, congress extended the Qualified Charitable Distribution (QCD): counts toward required minimum distribution without income or deduction

$10,000

$0 income

IRA$0 deduction

Qualified Charitable Distribution (QCD)

$10,000

$0 income

IRA$0 deduction$100,000

per person maximum

Participant 70 ½ or older

No private foundations, donor

advised funds, charitable trusts, or

charitable gift annuities

IRAs or IRA rollovers only; no

401(k), 403(b), SEP, SIMPLE,

pension or profit sharing plans

There are many options in charitable planning and estate planning.

The biggest risk is putting it off until “tomorrow”!