Charitable Planning Primer for Baby Boomers


A number of studies have been done over the past ten years to estimate the amount of wealth that will be subject to intergenerational transfer.  A 1999 study, by the Social Welfare Research Institute at Boston College, estimated the transfer that will take place over 55 years (1998-2052) at almost $41 Trillion! Of that amount, $24.6 Trillion was estimated to pass to heirs and $6 Trillion to charities.  The study described three separate age groups whose estates would come into existence during the 55 years: those born in the 1920’s, those born between the Depression years and the end of World War II, and the Baby Boomers born between1946 and 1964.  Even with the recessions of 2000 and 2008-2009, longer life expectancies and rising medical costs, the study’s authors reviewed their data in 2011, and reaffirmed the basic soundness of their estimates.

 The Center for Retirement Research at Boston College produced a December 2010 study for MetLife’s Mature Market Institute.  That study focused on inheritance and wealth transfer to Baby Boomers, estimating that they would inherit $8.4 Trillion.  The authors compared their results to the 1999 study, and found the results to be consistent.  They estimated that two-thirds of all Baby Boomers would receive some amount of inheritance.

So, are you feeling philanthropic, and considering making a major contribution to a charity, church or university of your choice?  There are a number of options as alternatives to a charitable bequest by will, and some of them offer significant tax advantages or wealth transfer opportunities.

 Two popular types of Charitable Trusts

  •  Charitable Remainder Trust (CRT): the donor transfers assets to the trust and has the right to receive trust income for up to 20 years.  After the donor dies, the assets pass to named beneficiary charities.  For those with estate and gift tax considerations to worry about, the CRT can offer significant tax benefits.  If highly appreciated assets were transferred to the trust, the donor avoids paying capital gain tax on the increased value.  There is also an income tax deduction for the charitable contribution, based on the present value of the future charitable gift.  The trust assets are no longer in the donor’s taxable estate, and therefore there is possibly less estate tax due.


    • Charitable Lead Trust (CLT): the donor transfers assets to the trust, and it pays all income to the designated charity for a specific period of time.  At the end of the trust term, the donor’s heirs receive the assets in the trust.  A CLT succeeds in moving assets out of the donor’s estate, although there is no income tax deduction for the charitable contribution.  The assets may grow while in the trust and transfer to heirs without the growth being subject to tax. 


    • Either  the CRT or CLT can be structured as an annuity, paying a fixed amount every year, or a unitrust, paying an income based on the value of the assets in the trust


    • It is possible to create a private charitable foundation so as to control the charitable contributions and the charities they are to service.  It tends to be a paperwork intensive process that may need professional supervision by an attorney or an accountant.  The foundation must be structured as a business entity, such as a corporation, under state law.  Then the foundation must apply to IRS for status as a 501(c)(3) charitable organization, so that contributions are deductible.  After the initial paperwork, the foundation is subject to strict IRS rules, annual reporting to IRS and the state corporation commission.  Violation of the strict IRS rules can result in onerous penalties.


    • An alternative to a private foundation is a donor-advised fund: the donor provides a lump sum gift to a charity, the charity manages the money with the donor providing guidance on how the funds should be spent.  The donor receives the maximum tax deduction for the charitable contribution at the time of the donation.  In comparison with private foundations, the donor does not have to bear the cost and effort of establishing and maintaining the foundation.  The charity administering the fund has full control of the funds from the time the contribution is made, and grants the donor status as an advisor.  The charity is not legally obligated to honor the donor’s wishes, but generally make grants to other public charities based on the donor’s recommendation.  The charity bears the responsibility to ensure that the recipient grantee has tax-exempt status.  May mutual fund companies offer donor-advised funds.


    •  Pledging to a university is a popular way to make a charitable contribution.  It is not to be done lightly, as it is a binding commitment, and universities may well sue to pursue a significant pledge that is withdrawn or not fulfilled.   Each state has its own laws on how enforceable philanthropic promises are. Donors should take care to specify when and how pledges are to be paid, structured, and used, as courts have enforced pledges, especially when there is a quid pro quo such as naming a building after a donor in exchange for a pledge.   

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