Estate planners often focus on the tax benefits of making a gift, as smart planning can help reduce or eliminate a wide array of taxes on the estate and individual. But if you thought the primary motivation for donor gift-giving was related to taxation, you are mistaken. The reason behind the choice to make a gift to charity over a family member runs deep-it is about an emotional connection to the mission of the benefiting organization. Neuroscience has revealed that giving is hard-wired into our brains, perhaps giving validity to the aphorism that “it is better to give than to receive.” With the right estate planning, giving can actually lead to receiving, in the form of tax benefits.
Many donors explain their generosity as a manifestation of their thankfulness. Donors who feel grateful for past care or support they or their loved ones have received from organizations weighs heavily on the choice to donate. Just as scholarship recipients may wish to say thank you to the group who opened the door to educational opportunities, those who have battled disease often wish to give back to the fight through foundations and contributions to their local hospital. Estate planning can maximize the benefits to the donor using tools like a gift annuity, so that retirees receive small payments back from the charity in return for a substantial donation, while greatly reducing taxation.
More generally, a genuine feeling of altruism is often a motive for generosity. This feeling often manifests itself with younger donors and women, is typically accompanied by volunteerism, and is closely tied to a belief in a cause or community. Most endowments are a result of altruistic motives, involving donating underlying funds which are then invested, thus ensuring that a percentage is allocated to a cause forever.
Donors with a higher net worth often see donations as an opportunity to set an example for their children. They make a conscious choice to donate so that others will follow suit. This is the motivation behind the Giving Pledge initiative put together by Bill Gates and Warren Buffet, who famously declared that a person “should leave his kids enough to do anything but not enough to do nothing.” By committing to the Giving Pledge, Gates, Buffet, and others can share their values with the next generation while continuing a culture of giving.
Finally, there is a certain amount of giving that occurs when people feel a sense of obligation. A recent study found that nearly three-quarters of household charitable giving goes to organizations with religious ties. [Melanie A. McKitrick, Mark Ottoni-Wilhelm and Amir D. Hayat, Connected to Give: Faith Communities (2013).] In addition to motivations discussed above, much giving stems from either a charitable mandate and religious conviction or social pressures. Similar social pressures can turn workplace and corporate “donations” from a choice into an unavoidable duty. But these “duties” can greatly help your tax situation. Techniques like giving back appreciated stock can significantly reduce tax liability.
The benefits described by those who have engaged in gift-giving go beyond monetary and property benefits, and extend to an unquantifiable sense of satisfaction and fulfillment. But, there are many tools for tangible, fiscal benefits that a qualified estate planner can effectuate, so that you can continue doing good for others while financially benefitting in the process.
If you or someone you know would like to set up an estate plan that incorporates charitable giving, regardless of the motivation, please do not hesitate to contact the experienced estate planning attorneys at Chepenik Trushin LLP for an initial consultation.