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Tuesday, April 27, 2021

ESTATE PLANNING PITFALL

ESTATE PLANNING PITFALL

Your Charitable Gifts are Unrestricted

If you’re making sizeable donations to charity as part of your estate plan, your good intentions are clear. But how do you know the funds will be used to further the charity’s mission? There are no absolute guarantees.

For instance, a financially sound charitable organization could begin experiencing economic difficulties and eventually file for bankruptcy or even halt operations. In that case, your donations may be used by the charity to pay off creditors or be allocated to some other purpose you hadn’t envisioned — and no one is going to ask your permission.

Fortunately, however, you can take steps to preserve your charitable legacy. Begin by placing restrictions on your gift at the time of the donation. Typically, you might limit use of the funds to a specific cause or function of the charity, like stating that the money must be spent on medical research or shelter for the homeless. Have this documented in your will, a trust or an endowment fund agreement.   

The exact rules will vary based on applicable federal and state laws, but restricting gifts can generally prevent charities from using the donated funds to satisfy creditors in bankruptcy proceedings. The charity is obligated (both legally and morally) to adhere to these restrictions. The requirements extend to any successor charity that steps in following a reorganization or liquidation.

Best approach: Do your homework before making substantial gifts to a charity. Rely on the online research tools at your disposal. One such option is the IRS Tax Exempt Organization Search (TEOS) tool at https://apps.irs.gov/app/eos. TEOS provides access to information about charitable organizations, including their latest tax returns, IRS determination letters and eligibility to receive tax-deductible contributions.


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