Giving

When Ted and Carol Cushmore revisited their estate plan last year, their attorney suggested a creative way to continue to give during the recession: Set up a charitable lead trust.

It would allow them to capitalize on lower interest rates so that they could leave an inheritance to family members and make significant donations to charity—in this case through their donor-advised fund at the Minneapolis Foundation.

“When you set up these charitable trusts, you get more bang for your buck,” says Ted Cushmore, a retired General Mills executive from Edina.

As investment accounts shrink in a down economy, people like the Cushmores may be inclined to scale back their charitable giving. But it doesn’t have to be that way. Thanks to some creative estate planning tools, bear markets actually provide unique opportunities for donors to continue giving generously—and beneficially—to causes near and dear to their hearts.

When interest rates are as low as they are now, a charitable lead trust can be a great way to give. It works like this: Donors create the trust and name their ultimate beneficiaries. But for an initial set amount of time—say 10 to 15 years—a designated percentage of the principal flows to charity every year. This reduces the principal and, therefore, the amount of taxes that beneficiaries pay on their inheritance. At the same time, the donors achieve their philanthropic goals.

“This idea has so much merit right now,” says Clint Schroeder, a principal at Gray Plant Mooty in the trust, estate, and charitable planning practice group and the attorney who advised the Cushmores on their estate plan. “With very low interest rates now, the value of the taxable gift to the donor’s children as calculated by the IRS is lower than when interest rates are high. In addition, these assets are generally worth less in a down economy, so less gift and estate taxes are due on charitable lead trust gifts to children during these difficult economic times.”

Giving in a bear market

In addition to charitable lead trusts, financial advisors have several other suggestions for giving effectively during a bear market. Two options include charitable gift annuities and charitable remainder trusts. With these gifts, donors can specify that they personally—or a family member—will receive a stream of income for a set period of time or a lifetime, after which charity gets the remainder, says Sheryl Morrison, a principal in Gray Plant Mooty’s trust, estate, and charitable planning practice group.

“When people are facing an economy like this, a donor might say, ‘I am charitable and I do want to make a gift, but I’m afraid to lose part of my own cash flow. So I want to keep a stream of income to provide for my own needs during my lifetime,’” says Morrison. “A charitable remainder trust or charitable gift annuity maintains cash flow for the donor who isn’t comfortable giving the property to charity outright.”