An earlier article discussed Opportunity Recognition, one of the Four Cornerstones of building a successful charitable planning practice. Recall the reference to fundamental testamentary transfers – bequests by will.
These transfers take place only upon the death of the donor and bequests by Will represent the largest segment of testamentary transfers that occur. But there are others worthy of your familiarity as you progress in your ability to uncover gifts.
First, are beneficiary designations
These can be attached to annuities, life insurance policies and even qualified plan accounts such as IRAs or 401k plans.
Remember that opportunity recognition is a process of discovery, so take time to read every document and ask a lot of questions.
For example, when you see a charitable designation for a life insurance policy, find if it may be best to gift the policy now and utilize the immediate income tax deduction that will result. And if you do accelerate the gift check with the charity, make certain that their policy allows gifts of life insurance.
You will be shocked how many organizations either don’t have a written gift acceptance policy or won’t accept any asset other than cash or readily marketable securities. You may conclude that it is better to give a different asset because the life insurance will go to the non-charitable beneficiaries income tax free while other assets, such as IRAs, may not.
If a charity is the designated beneficiary on an IRA or other qualified plan, again, it’s time to ask questions that help you clearly understand the philanthropic intent of your client and donor. Does your client know that the beneficiary designation can be split among multiple charities in any percentage?
Now that the charitable IRA rollover is a permanent part of the tax law, it might be appropriate to help your client take advantage of the 100k per year direct IRA gift. Advisors can be a huge help in sorting through the somewhat complex forms and paperwork that often accompany this particular gift.
Less common, but still an important type of account, is the Transfer on Death or TOD account
These operate a beneficiary designation only for assets that are not normally associated with having “beneficiaries,” such as bank accounts, brokerage accounts and even real estate. When real estate is involved, it is that state’s regulations that govern transfers.
Currently, approximately eighteen states allow TODs of real estate – a few more have introduced legislation. If this is something that you were thinking about recommending, check state law first. TODs can be established to transfer to heirs, to charities or both.
However, if you spot an existing TOD headed for charity, this is a great opportunity to discuss other charitable options for the same asset(s). Appreciated securities may be exchanged for a charitable gift annuity, contributed to a charitable remainder trust or even a new pooled income fund.
Active pursuit of this kind of examination by advisors should be common!
This activity alone will set you apart from your peers. But what will distinguish you is the ability to unlock gifts that your clients were unaware they could create. You can find hidden treasure simply by reading documents and looking at beneficiary designations, then asking good questions about what you discover. This is an extraordinary opportunity for your clients and for you as an advisor.