What Inheritors Need to Know about Charitable Giving

Join Katherine as she talks with Rebecca Bibleheimer, Senior Complex Gifts Officer at the Oregon Community Foundation, about what inheritors need to know about charitable gifts made through their parent's or grandparent's wills. 

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Transcript

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Hello everyone and welcome to today's episode of Planning for Inheritance, a Sunnybranch Wealth podcast covering as the name suggests, all things inheritance. I'm your host, Katherine Fox, founder and advisor at Sunnybranch Wealth. an inheritor and I built Sunnybranch to serve current and future inheritors who need help talking to their parents about their estate plan, navigating the estate settlement process, or figuring out what to do after they inherit wealth. Before I introduce our guest today, I'd just like to make a quick note that the Sunnybranch guides for inheritors are available for free to anyone who is struggling through any part of the inheritance process. You can find that guide available on my website, www.sunnybranchwealth.com, or get a copy on Instagram @sunnybranchwealth. With the housekeeping out of the way, I am so excited to announce our guest on the podcast, Rebecca Bibleheimer, the Senior Complex Gifts Officer at the Oregon Community Foundation. At OCF Rebecca provides gift planning assistance to donors who are interested in supporting charitable initiatives throughout Oregon and serves as a subject matter expert on all types of giving vehicles and funding charitable Donations with non-cash assets. Rebecca is a public speaker who enjoys educating, empowering, and supporting others in their work in the fields of gift and charitable planning. Prior to joining OCF, Rebecca worked as a philanthropic advisor and planned giving consultant for US Bank Charitable Services Group, and as a trust and a estates attorney for a tax boutique law firm. She has almost 20 years of experience in these fields. Rebecca, welcome. I am so glad you can join us today. Great. Thank you. I'm so excited to be here. I think what you are doing with your firm in this podcast now is just wonderful, and I am thrilled to be a part of it. Thank you for inviting me. Well, thank you. Our questions for listeners today are gonna focus on charitable gifts made through a donor's estate, and specifically what inheritors need to know about this type of philanthropic planning. Before we dive in, a lot of our listeners are not gonna be super active in the philanthropic world yet, although their parents or grandparents maybe. Can you just take a second to explain what a community foundation is and what role the Oregon Community Foundation plays in our state's philanthropic picture. Yeah, absolutely happy to. A Community foundation is going to be what is referred to as a 501c3 public charity. So that's kind of its legal definition. It, it does qualify for those best tax, uh, results for, um, contributions. But more specifically it's gonna have a specific community focus. Typically they're going to be regionally based and sometimes even more specific in the community that they're serving. For instance, a specific religious community may be identified for, for what the community foundation is serving. Ideally community foundations are really, uh, intended to serve as a place for a pooling of community resources and will hopefully provide increased accessibility to those resources and more options for all nonprofits but especially charities who don't have their own planned giving programs. Um, community foundations often will really bridge the gap in terms of long-term planning and endowment resources. When we talk about O C F specifically we are a bit of a rarity because we are a statewide community foundation, which there's only three or four across the country. So it's, you know, most of them are a little bit more regionally specific, so it's got a lot of advantages. It's wonderful. We love serving all of Oregon, but it can also have some challenges as well. Um, we really strive to serve as a trusted partner for all the communities and charitable organizations in Oregon and we do so through careful and thoughtful stewardships and accessibility. Um, OCF offers, donor-advised funds and other types of charitable funds for donors to use for their charitable giving during their lives. And beyond, and these funds are often gonna be included in, uh, their family's estate plans as a means to transfer philanthropic wealth and values to their loved ones. So many of your listeners, you know, may have experienced them, as you said, through, um, their parents or grandparents' estates. Got it. Thank you for the, the thorough overview. To get a little more specific on the inheritance side of things you just mentioned, you know what some listeners may be familiar with having been through it with their parents or their grandparents estate. But for those who aren't, can you just walk us through the common charitable giving structures that an inheritor may encounter in a loved ones will, uh, kind of starting with the simple and and going to complex. And also maybe take a second to just explain, you know, when we say charitable giving structures, what are we actually talking about there? Yeah, absolutely. The simplest, you know, way that people will usually encounter these in their loved one's wills will be, um, a bequest. And a bequest is just a fancy word for gift made at death. So that, and that gift to charity can be a dollar amount. It's more commonly a percentage just because oftentimes there's a long period of time between the time when, um, the person writing the will writes it and then they actually pass. And so a percentage would allow that gift to, grow or shrink with their asset size, uh, versus a dollar amount, which will remain static, obviously. Um, you may also see specific assets, sometimes designated for a charity. Um, and then another common structure is where the residue, which means like everything that's left over goes to charity. So it'll be, X amount to stated individuals and then whatever's left is gonna go to charity after all of these other gifts are, satisfied. In addition to wills, we're often going to see trust as well, right? Uh, a will really only is going to have control over assets in someone's probate estate. So it's a very common planning tool, um, for people to have trust. And that is gonna look basically exactly the same as what I just said. So it's also called the bequest, whether it's in a will or a trust in those same parameters and types will apply. The other thing you may see is something called the beneficiary designation. That is where the person who passes has actually filled out a form leaving a spec, very specific asset, like with the account custodian saying, I want this bank account or this brokerage account to go to this charity when I die. Um, that's pretty rare for gifts to charity but where we do see that a lot is potentially with life insurance. Which are often designated for charities and that's their beneficiary designation or with IRAs. And the reason we see it with IRAs is because there's very specific tax consequences for IRAs where the inheritors, the people who inherit the IRA, will be subject to income tax on what they receive. So since the charity is tax exempt, a lot of times for tax planning purposes, that is what will be designated for charity. When you talk about the, the structures specifically beyond, so that's more just outright gifts, right? Within that will or trust, um, there can be a structure created, a lot of times those will be donor-advised funds. It's a very common one. Most community foundations will offer donor-advised funds. There's also some national commercial, entities that offer these as well. But I think more often when it's a testamentary gift, a gift made through a will or trust for charity. Um, what, where you'll see is a community foundation involved, where there'll be a fund where those heirs or inheritors are then allowed to advise on the fund and work with the community foundation staff in determining where the charitable grants and, and money will go each year. Some of the other structures we may see would be, uh, testamentary, charitable remainder trust or a gift annuity. Both of which are, um, basically a system where it's a split gift, where there's a gift made that actually will produce income for one of the inheritors or heirs or loved ones. It can be a friend, it can be a child, it can be anyone but where there's an income stream that's created for that person, usually for their life, but it can be for a term of years, with the remainder going to charity. So that's on the more complex end of what we'll within that will or trust. But a lot of times the will or trust will create, um, testamentary trust, charitable remainder trust or gift annuity with the nonprofit. The other place we see these is what's something very common right now is they're often paired with that IRA. So as I said, an IRA beneficiary designation. Is often a way a gift is made to charity at death where the beneficiary designation is filled out to say, give this account to this charity. But what we're seeing more and more of is where a charitable remainder trust is actually utilized as the in between. So the beneficiary designation is filled out for that trust, where then an income stream will be paid out again to an heir, inheritor, child, whoever it is for their life, within the remainder of that trust going to charity at the end. So if I understood that correctly, the IRA gets left to a charitable trust. And then an inheritor is the beneficiary of a charitable trust that could last for the beneficiary's lifetime or for a certain number of years. correct. Exactly right. Yes. And we've seen a huge uptick in those. Um, in 2019, there was some legislation enacted that changed some of the rules around IRAs. So there used to be something called the stretch, IRA, that allowed the inheritor to take it out over their life and req and for their required minimum distributions, they were spread out over their life. That rule changed to 10 years for most inheritors. And so that is why we've really seen this increase in popularity of these, because there's some tax planning that comes into play where instead of having it pay out to the inheritor in a smaller period, um, it allows for them to receive it over their life with increased tax benefits, but ultimately with the charitable gift being made out of that same account as well instead of a different, different pot of money. So for inheritors who are also serving as an estate executor or administrator, how complicated is it to set up or put in place these structures after someone dies? I'm imagining someone who's grieving and trying to understand what's going on. Also being told that they need to set up and deal with funding a trust from an IRA and just getting a lot of blank stares. What do people need to know now to help them prepare? That's a really good question. We always try to encourage donors we work with to consider that. Um, exactly like you're saying. You want to help minimize some of that, that hard work that, you know, at a time of grief. But actually, usually the charity will be serving as trustee of these charitable remainder trusts, um, or third party trustee. But so as such, that is actually the party that would need to do all the paperwork and get all the , do all the hard work to get that money from that ira. So it can actually be a really good thing in that sense in that it doesn't create a lot of work versus if the beneficiary designation was to the charitable trust, say, or the estate, then that person serving as trustee, I mean, the personal trust, then the, the inheritor who's serving as the trustee would have to be doing all that paperwork. So it actually is going to be beneficial for them typically to have the charity or the third party trust company in place that would then be doing dealing with the IRA custodian to get that money out of it. So, yeah, typically speaking, I think that a lot of these will be pretty easy on the admin. One thing that is important to note is that if you have a trust, there are going to be some accountings required by charities, um, if it's probate. So if it's in a will, then there already you're gonna be accountings done. So that's not going to usually be anything extra. Trusts should really be doing accountings for all its beneficiaries but sometimes if it's all family members we have to be the ones to say, oh, we actually are gonna need an accounting here. And it's not because we don't trust people, it's not because we're just held to some fiduciary accounting standards, um, where we really have to get some, some sort of accounting or paperwork. So we work really closely with trustees in that case to help them understand what those requirements are and just make sure that we can cross that off our list. But yeah, they, it's important for to know there, there is some accounting that needs to done, in line with what they're already doing as trustee and valuing and gathering the assets. The other thing that can be, um, important for them to note is if the gift is of a specific asset. They may have some options around that and what that looks like. Most trusts or wills will have language in there allowing the trustee or the personal representative to, uh, satisfy that, that gift with cash instead. Right. Or to sell it themselves. Um, so there's some tax planning that goes into that. So during life, people will often make gifts of appreciated assets to charity because then the charity sells it and the capital gains aren't due if it's been held for a long time and appreciated. When someone transfers something at death their state or trust experiences, what is called a stepped up basis, meaning that tax basis that's used to calculate the taxes due on the sale is increased to the present value. So a lot of times there aren't taxes due, so it does often make sense for the trustee or the personal representative to sell that asset or, uh, make other decisions about how they want to allocate that. So just working closely with the charity, making sure that their, the trust or will in question does allow that and that the wasn't really specifically saying, no, I want this property to go to this charity because I want them to use a a domestic violence shelter or something along those lines. That would be something that would need to be enacted exactly that way. But otherwise, there's usually some flexibility around that. And we're always happy to work with the trustees or personal representatives at the moment and talk to them about what that will look like and what their options are, and help them think that through. I'm sure families are, are very grateful to have you and the team at OCF involved when they're dealing with a lot of these complicated structures, even if it's the charity or the nonprofit that's responsible for getting the money, there's still seems like always questions for the inheritors themselves to answer, especially if they're involved in the estate settlement process. Yeah, absolutely. You mentioned earlier, briefly, donor advised funds and that a lot of people might leave money to donor-advised funds through their will or trust, um, to the Oregon Community foundation. When we move beyond the estate settlement process can you explain the types of giving vehicles that are commonly used that require ongoing participation from heirs and talk a little bit, especially for inheritors who may not have been involved in philanthropic giving in the past, how you've seen families and inheritors, siblings, however they're related, navigate that transition? Yeah. Yes, definitely. Yeah, you're right. Donor-advised fund is gonna be the big one here that we see the most common, where the inheritors are going to remain involved. And we really encourage our donors, and I would encourage inheritors listening to this, so talking to their parents or grandparents or whoever would be passing the wealth to them about really trying to involve them. Or inform them or make introductions, to the extent that that is, uh, something that everyone's open to. We love when we can get to know people during the their, the parents' life as well. So oftentimes we have relationships with those, the, the initial advisors on the fund. And then when they pass, they will name their, their kids as that successor advisor, whoever else it is. And so if we don't already have a relationship, then we just establish a relationship at that point. So everybody who has an advised fund is assigned a specific staff member, a donor relations officer that really is their guide, right, their contact. So it's who is going to serve as a resource for them and making decisions and thinking about what their values are and thinking about what they want to do with their philanthropic giving, if they haven't already formulated that. Um, if they have formulated that and they just want suggestions on I need arts organizations in this county that I would like to give to, or a food bank in this city that I would like to give to whatever it is. Whether it's matchmaking or bigger than that, and helping them really think through the bigger picture and what they're interested in that would be their person for that. So there was a, an orientation meeting that we have that just makes them aware of all the resources we have, all the connections we can help them with. All the things that we do with them as advisors, how they actually get those grant recommendations to us, the mechanics of it all. Um, all of that piece. So again, we're happy to do that while the person leaving, the wealth is still alive, if they're open to it. And if not, then you know, at the time that they have passed and this fund is now being created or passed on to these successor advisors, then at that point we try to get that scheduled and to just work with them through it. We also could say a charitable remainder trust or a gift annuity or some of these other vehicles would also be something that the inheritors would, be involved in. But typically their involvement is, is limited to receiving checks. So ,it's, it's usually not something that there's too much work on, but we certainly wanna make an introduction, make sure they know how to get ahold of us if they move, if they change checking accounts, those sorts of things. They would wanna make sure that they're letting us know. We wanna make sure they understand we're always happy to have that initial meeting to make sure they understand how this trust is gonna work. A lot of times they're, they're variable payouts, meaning it gets revalued every year. So we really wanna make sure they understand that, how that's gonna get valued every year. What the expectation is. Make sure they understand that there will be a K1, or a 1099 tax form received, and that they'll owe some taxes on that income potentially. And, and plan for that. We try to be very thoughtful and proactive. And I, I think, other charities who are in similar roles are, are gonna have systems for this in place as well. But that's typically, the main ones where there's, theres some required involvement continuing from those inheritors. Can you talk a little bit about where inheritors may expect things to go sideways? Obviously not because of anything that OCF or any other charity who's receiving a a bequest did. But if there was information that wasn't communicated from parents to heirs, um, what happens if there's a surprise that's revealed in a will and, a nonprofit bequest is part of that? Yeah. It's unfortunately something that does happen. They are rare. Estate disputes are very rare, I'm happy to say in our world. And I think we work quite harmoniously with the majority of, of, uh, the inheritors from most of our donors. But every once in a while there is it's definitely something. A lot of times it's uh, if there's been a really long time period, especially between the time the will or trust was created and then there's no conversation around it, no follow up, no connections being made, and the person passes. I think it's really important for inheritors to understand that charities are held to fiduciary standards. We really are held to some actual legal standards in processing these gifts. So I, I've had it happen before where I, working with a, a donor's child. Who says, oh, he changed his mind, he didn't, he didn't wanna do this anymore. Right. Um, or, or whatever. And, it's, but if we have the documents and they are signed, you know, we will always try to work with We are always gonna try to get to reasonableness. But the other piece of that is the Department of Justice is a party. To any charitable gift as well in these circumstances. So while we will try to agree to modifications, if there's evidence of change, of intent, I mean the donor is really, um, our, the donor's intent is our North star. What we have to really, we strive to figure out and determine. So we're always open to, to evidence, to conversations, to other people who were involved. If there was an attorney that, the donor actually had a conversation with before they passed and indicated that. That's, really strong evidence and we will certainly take that into account and work on modifying that. But we also have to get the Department of Justice to agree. And it may be if you're saying, okay, we want it to go to this charity instead of your charity, that's something we may be able to agree to. If you're saying we want it to go to us instead of you that's not something we are legally allowed to agree to really. So our hands are tied a little bit as well. I've, I've, did have somebody who very much this exact experience happened and they got very frustrated because they, they just kept saying, but I'm telling you that he changed his mind. Unfortunately there are not everyone always is, is going to be a hundred percent truthful about that. I absolutely always, try to believe and, and empathize with the person in front of me. But, again, it's not me as a person. It's, a, a legal entity, navigating accounting and legal rules, and we just have to honor that donor intent because donors are giving us these things for a reason. So we're always happy to work within reasonableness and look at evidence and talk to you and see what we can do to get there, um, and come to some sort of agreement, but it's not as simple as, really just being able to say this, this wasn't the real intent, or they changed their mind. So I think that's where it's important to know. The other thing that's important to know is the charity sometimes actually disclaim gifts. So, one very common thing I see is when people have a really sentimental, lovely, gorgeous piece of property in their family, right? And so they will say, well, I wanna give this to charity in perpetuity, but I'm gonna restrict it, right? I'm gonna have language that says it has to be used as some sort of haven or, in, in, in some sort of charitable mission or whatever it is. Well, running a a property takes money. Right. And, um, and if it's not within the charity's priorities or mission or, or budget in, in forever and perpetuity is a very long time. So, uh, a really well-intentioned, lovely gift. I mean, I've seen gorgeous properties, right? That, that were intended in this way. And you'll talk to the family members will but this property's so special. And I absolutely agree. You know, you, they're gorgeous properties, but a charity may not be able to utilize that. When I've talked to families who want to utilize their property in this way, if we know beforehand we can help, right? We can try to connect them a charity that it would be able to serve a purpose for that would be really happy to have it. a lot of times it may require some money, and endowed fund that goes with it, that then will help sustain that property. Then it can become much more attractive as a self-sustaining restricted gift. But yeah, I think sometimes people are surprised. Sometimes charities, if there's too many restrictions or restrictions that just don't work for that charity, especially if they're in perpetuity. But sometimes charities will have to disclaim and say, unfortunately, we're so grateful, but we're, we're not able to accept this gift. So that's something that can surprise people as well. There's a lot of nuance to the entire charitable giving process after death and something that hopefully donors are educating themselves about before they pass. But if not, a lot of that can fall on inheritors. So I'm so glad that you were able to spend some time with us today to educate our listeners. Rebecca, I wanna thank you so much for joining us and sharing your planned giving and philanthropic expertise with all of us here. Thank you so much for having us for having me. And yeah, I just thank you to the listeners for their interest in this and we're always happy to serve as a resource in any way we can. And yeah hope we, we love it when the process goes smoothly and everyone is, is happy. We will our fingers crossed for more smooth processes in the future. Absolutely. Always, always. For anyone listening who is interested in getting in touch with Rebecca and the amazing team at the Oregon Community Foundation, you can learn more at oregoncf.org, C as in Charlie, F as in frank.org, and you can tune in next month for the next episode of Planning for Inheritance with Sunnybranch Wealth. Thanks for joining us.