THE TERMINOLOGY:
WHAT IS A BEQUEST?
Q. How much money is at stake that could be bequeathed to non-profit organizations?
A. During the first part of this century, an estimated 11 to 12 trillion dollars will be passed from estates of World War II -generation and the early baby boom generation.
Q. At current bequest levels, how much of this would go to charity?
A. A national
study of wills and estates showed that only 3 percent of Americans provide for a
charitable bequest at death. In Michigan, only 2.8 percent leave bequests --
although 81.5 percent of Michigan residents give annually to non-profits.
Imagine the benefit to charities if this number doubled to 6 percent of American estate
plans -- or went up to 10 percent, which is still a low percentage.
Q. Are more people planning bequests today than did so in the past?
A. A few. According to a donor survey, 5.7 percent of households surveyed plan a charitable bequest. However, if the bequest appeared only in the will or estate of the second-to-die, only an estimated 2.8 percent would leave a charitable legacy.
Not only do relatively few people make bequests; the bequests they do make produce relatively few dollars. A Giving USA study in 1995 reported that funds from bequests accounted for only 6.8 percent of total giving nationwide. Charitable legacies, when adjusted for inflation, have remained constant since 1987.
However, bequests now account for the vast majority of planned gifts, and this trend is expected to continue. Bequests in 1995 accounted for $9.77 billion in contributions to charity, up from $7.64 billion in 1990, and there has been a steady rise from year to year. Nonetheless, this still is a small percentage of the estates left each year.
Q. What about wealthy Americans -- don't most of them leave bequests?
A. No! A 1995 study of federal estate tax forms -- required only for estates in excess of $600,000 -- revealed that only 19 percent listed charitable gifts. This suggests that 81 percent of the nation's wealthiest people would rather pay the estate tax than give assets to charities.
Even sadder, the IRS says that charity's share of the money in these wealthy estates has dropped sharply, from 21.8 percent in 1976 to 6.3 percent in 1992.
Q. But I read somewhere that the average charitable bequest in 1995 was $125,000. That's a lot.
A. That number is true, although misleading. Of those nearly 70,000 federal estate tax returns filed in 1995, 13,000 reported charitable bequests. These totaled $6.7 billion, or an average of $125,000. However, since one or two billionaires who leave their wealth to private foundations can skew the results, a median amount would be a much more useful figure than an average. To illustrate, on the 1991 tax returns from estates of over $10 million, 2.6 percent of the returns claimed 41.5 percent of the charitable deductions.
Q. Should non-profits be leaning harder on their major donors to leave bequests?
A. Not necessarily. It's interesting to note that a study of planned gifts to charities over a five-year period revealed that more than 75 percent came from people who were not known to the charity. Either the decedents had not made gifts to the charity during their lifetimes, or their contributions had been too small or too long ago for them to remain on the charity's donor lists.
Q. Can an average person leave a legacy?
A. Definitely! Bequests are one of the simplest forms of planned giving, and are a way to perpetuate any person's lifetime commitment to a favorite non-profit organization. With bequest vehicles, people can make major gifts to charity that they could not have afforded in cash during their lifetimes.
Q. What kinds of bequests could I make?
A. There are nearly unlimited types of vehicles -- and they can be imaginative as well as traditional. They can be a specific dollar amount or a percentage of the estate. Some of the better known forms of bequests are cash, securities, life insurance, certificates of deposit, real estate, or -- to also provide an income stream to themselves or a loved one from the charitable bequest, using a pooled income fund or various forms of trusts.
Q. What are the advantages to donors and their heirs?
A. Tax deductions. All outright bequests are subject to the unlimited federal charitable deduction from a decedent's gross estate, and annual contributions to the donor's chosen bequest vehicle are tax-deductible during the donor's lifetime.
Q. Can funds from an IRA or retirement plan be part of a bequest?
A. Yes -- and the number of estates containing IRAs and retirement plan assets is skyrocketing. They are an attractive source of charitable bequests, because a tax-exempt charity can receive the funds with no tax liability and therefore can apply 100 percent of those assets to charitable purposes. By contrast, family members who inherit IRAs and retirement plan assets must pay income tax on them, even though they aren't taxed for other assets they inherit. Also, these funds are subject to estate and inheritance tax in larger estates. By the time all taxes are paid, some beneficiaries receive as little as 15% of the retirement account.
Q. Who do I see to Leave A Legacy?
A. You can talk with an estate planner, or a trust officer at your bank, or an attorney who specializes in estate planning. You may also wish to talk to your favorite charity.
Carpenter Dominic Mason died in 1989.
Tomorrow, he’ll renovate the playroom at the local homeless shelter.
As a carpenter, Dominic renovated homes for his clients. As a child, he and his mother found a home in a shelter when times were hard. A counselor there showed Dominic a future filled with opportunity, and he never forgot that life-changing vision. Thanks to a bequest in his will, a few more children will have a chance to build their dreams. Include your favorite cause in your will or estate plan. Contact a charitable organization, attorney, financial advisor or local LEAVE A LEGACY® program to learn how.