Thursday, July 28, 2005

An in-depth look at a charity's estate planning primer

(Post #100) Mission to the World, a Christian charity supporting missionaries, recently sent me a brouchre with a lead article, "Five Core Principles of Estate and Gift Planning". These principles, and my comments on them, follow:

(1) "God is owner of all"--absolutely appropriate Christian theology, and, after allowing for differences in understanding who God is (Abba vs. Yahweh vs. Allah) also appropriate for Jewish or Islamic theology.
The point appears to be twofold: [a] there are limits on what you should assign your estate to, [b] taxes and probate are not the only important estate planning issues. Obviously, non-believers are pretty much leaving the brouchre at this point.

(2) "[Since] God owns all, then the only value of anything is the ability to use it"--basically the argument here is that the material goods that humans call "ours" are effectively leased assets. The author (Bruce Owens, director of partner relations) is clearly a fan of trusts where the principal in time goes to a charity while the owner keeps a life interest. Even if you plan to give sizable amounts of your estate to charity (see point 5) there is more than one way to accomplish such a gift; in fact, I strongly recommend talking to a competent attorney, banker and financial advisor such as a CPA before putting assets into a trust. There ARE good reasons for using trusts as an estate planning device, but the trust must be set up carefully to avoid unexpected hassles or even loss of assets.

(3) "If the only value of anything is the ability to use it, then [in time], the use of money will always exceed its original value"--Mr. Owens refers to the rule of 72, which basically says that principal will double when the discount rate times number of periods equals (approximately) 72. The rule of 72 is an excellent reason to save money, not only (or even primarily) for an estate, but for such reasons as financing a child's college education, preparing for retirement or making a major purchase such as a car or house. He also indicates that paying taxes (or any other form of consumption) takes away the right to use the money in the future. Again, he promotes the charitable trust as a way of avoiding income taxes; again, this IS a legitimate way to avoid taxes if done with care (see point 2)--by no means, however, is this the only way to leave money to charity without paying estate taxes. Even among those willing to donate to charity at death, many will prefer to wait until after death.

(4) "If the use of something is its only value, there will always be an upper limit on what [one] can use"--this point used to make the sale is consistent with St. Paul's teaching in chapter four of Phillippians on contentment, but is getting dangerously close to being pushy. I am not a big spender personally, but do not generally have problems with other people spending more freely so long as it is within their means (and even here, I must realize that some people because of bad fortune (such as unemployment or medical crisis) may need to spend beyond their means, at least in the short run). Giving to charity, whether during life or at death, is worthwhile; having said that, the decision to give should be a personal conviction and not something done because of legal, physical or emotional pressure.

(5) "Everyone with wealth will make a charitable gift"--this may change if the Bush administration succeeds in eliminating the estate tax. His follow-up point that money in an estate will go to one of three places--family or other individuals, government or charity ignores estate administration and payment of debts of the deceased, but is generally true otherwise. Additionally, his point about making informed choices about where money is left, including any charities who are to be beneficiaries, is well made.

It is possible that some who read this will need to establish a will and determine where they want their resources to go upon death. Certainly, those who are married or still living with parents or siblings may want to consider their plans. Also, keep in mind any loved ones who have major financial needs because of chronic medical costs.


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