Mailbox: How Can I Leave My Estate To A Charity?

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I have a simple estate consisting of some retirement accounts, a little life insurance, an annuity, a bank account, a small investment account, my car and the house I live in. My home is paid for and I live very simply on my Social Security. My entire estate is probably worth about $500,000. I have a revocable living trust, but I do not currently have an estate planning attorney, nor do I have a financial advisor. I do not have any children, and I would prefer to leave my modest estate to my favorite charity. I think I should start by updating my revocable living trust. What is the simplest way to accomplish this?

First, thank you for your generosity. Leaving a legacy can be a great benefit for the charity receiving the gift.

With estate planning it is always more important to ask “What is the surest way to accomplish this?” than to ask “What is the simplest way to accomplish this?” Verbal deathbed requests have been known to accomplish something, but we think it is important to make sure to name beneficiaries on retirement accounts and insurance policies in addition to all the other things you need to do to implement the estate plan.

Here are some of the things an estate planning attorney will probably do as they help you through this process:

1. For the assets which have a beneficiary designation, you would designate the charity as the beneficiary. This would include retirement accounts such as IRAs and 401(k)s as well as insurance products such as life insurance and annuities. We have written a separate article on “How To List A Charity As Your Beneficiary.”

2. For assets which are normal taxable accounts such as bank accounts or taxable investment accounts, you can designate the charity as the beneficiary in one of two ways:

(a) You can specify that the account be Payable On Death (POD) or Transfer On Death (TOD). POD and TOD trump any other estate planning provisions. Even if your will or other estate planning documents specify that the asset should be given to someone else, the POD or TOD will supersede your estate plan and distribute the asset before your will even comes into play. While using POD or TOD is effective, it can also be dangerous. You may have a wonderful estate plan and then open a bank or investment account, fill out the POD or TOD section, and completely override your well-designed estate planning documents.

(b) You can specify that the account be distributed in accordance with your will or other estate planning documents. This is often safer so long as your estate planning documents are in order.

3. For other assets such as your car or your home, they need to pass according to your will or other estate planning documents just like in 2(b) above. Your will or other estate planning documents should instruct the executor of your estate to sell these assets and distribute the proceeds to the selected charity. The executor of your estate will have the freedom to pay realty costs, consider offers and do anything else which is reasonable in settling your estate.

Writing a will or other estate planning documents for someone else is considered practicing law. There is a saying from Abraham Lincoln, “He who represents himself has a fool for a client.” Even lawyers hire other lawyers to represent their interests in legal matters. Yes, there are many online resources that you could edit and would probably work. But I would recommend hiring a lawyer to help you get 2(b) and 3 done correctly.

You also need to select someone as the executor of your estate. Children are the natural ones to burden with this task, and it is a burden. Think carefully when you choose your executor.

If you are leaving your entire estate to the charity, you may want to designate the charity as the executor of your estate. And if the organization can’t serve for some reason, you can authorize the board of directors to appoint someone to serve as your executor.

As you can see, an estate plan is mostly words, but lawyers know the right words to use, and the terms sometimes depend on the state you are living in. So we would recommend hiring an estate planning attorney to make sure that your intentions are followed.

We’ve written another article called “How Do I Find An Estate Planning Attorney In My Area?” The process should cost around $1,000 to $3,000. You may find a lawyer who will do it for less as a pro bono gesture for the charity.

And once again, thank you for your generosity.

Photo by Thomas Hawk used here under Flickr Creative Commons.

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David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. Favorite number: e (2.7182818...)