Introduction
When it comes to California trust administration, my favorite phone call involved a local dog shelter. I had the privilege of calling a small San Diego County dog shelter to let them know that a deceased client had left them a seven-figure gift through a California revocable living trust. Calls like that do not happen every day. They remind me why estate planning and trust administration can have such a lasting impact.
Leaving money to charity through your estate is one of the most meaningful ways to create a legacy. Your gift can continue supporting a cause that was important to you long after you are gone. However, thoughtful estate planning should accomplish more than simply directing where your assets go. It should also make life easier for your successor trustee.
Many people focus on the amount they want to leave to charity. However, they never consider the work that those gifts may create during California trust administration. With careful drafting, you can often reduce delays, lower administration costs, and make it easier for your successor trustee to carry out your wishes.
In this article, I will discuss six practical tips for leaving charitable gifts through a California revocable living trust. Each suggestion can help protect your charitable intentions while making the trust administration process smoother for everyone involved.
You Do Not Need a Charitable Trust to Leave a Charitable Gift
Many people believe they must create a separate charitable trust to leave money to charity. Fortunately, that is not true in many situations. A California revocable living trust can often accomplish the same charitable goal without adding unnecessary complexity.
Specialized charitable trusts, such as charitable remainder trusts or charitable lead trusts, certainly have their place. They can provide valuable tax planning opportunities and accomplish sophisticated estate planning goals. However, those trusts are generally used in more specialized circumstances and often involve additional drafting and administration.
For many California families, a standard California revocable living trust is all that is needed. The trust can simply direct the successor trustee to distribute a specific gift, or even several gifts, to one or more charitable organizations after the settlor's death.
Using a revocable living trust instead of a separate charitable trust can also simplify California trust administration. Rather than administering multiple trusts with different rules and requirements, the successor trustee can follow one clear set of instructions. As a result, the administration process often becomes more efficient and less expensive.
Of course, every estate is different. Some individuals have complex tax planning goals or unique charitable objectives. Therefore, it is always wise to discuss your specific circumstances with your California estate planning attorney before deciding how to structure your charitable gifts.
Name a Backup Charity
Charitable organizations sometimes close their doors. Others merge with another organization or change their legal name. As a result, a charitable gift that seemed perfectly clear when you signed your trust may become difficult for your successor trustee to administer years later.
This situation can create unnecessary delays during California trust administration. You may have intended to support one very specific charitable cause. However, the organization you selected may no longer exist when your successor trustee begins administering your estate.
In some situations, the successor trustee may need legal guidance before distributing the gift. Depending on the circumstances, court involvement may even become necessary. Unfortunately, the legal fees and delays associated with resolving that issue may exceed the value of the charitable gift itself.
Fortunately, there is a simple solution. Your California revocable living trust can name both a primary charity and a backup charity. Ideally, the backup organization should support the same charitable purpose as the first organization.
For example, your trust could provide:
"I give $1,000 to my preferred dog rescue organization. If that organization no longer exists at the time of my death, I give that gift to another local dog rescue organization."
You can also take your planning one step further. Your trust may direct the successor trustee to distribute the gift to another dog rescue organization or animal shelter with a similar mission if neither named organization still exists.
Adding only a few extra lines to your trust can save your successor trustee significant time, legal expense, and uncertainty. More importantly, it helps ensure that your charitable intentions remain intact even if your original choice of charity no longer exists.
Review Your Charitable Gifts Regularly
Charitable organizations can change significantly over time. A charity may close, merge with another organization, change its legal name, or even shift its mission. Therefore, you should review the charitable gifts in your California revocable living trust whenever you review the rest of your estate plan.
Many people sign their trust and then do not look at it again for years. However, an estate plan should be reviewed periodically with your California estate planning attorney. During that meeting, confirm that each charity still exists and continues to support the cause you intended to benefit.
You can also verify that a charity remains a qualified tax-exempt organization by searching the IRS Tax Exempt Organization Search before updating your estate plan.
You may discover that a charity has merged with another organization or now operates under a different name. In other cases, the charity may no longer exist. If that happens, you can simply amend your trust and name another organization that better reflects your charitable goals.
Regular reviews also give you the opportunity to decide whether your charitable priorities have changed. Perhaps another organization now serves the cause you care about more effectively. Alternatively, you may decide to increase, decrease, or remove a charitable gift altogether.
Taking a few minutes to review your charitable beneficiaries can save your successor trustee significant time and expense. During California trust administration, the trustee can simply follow your updated instructions. Instead of researching whether a charity still exists, the trustee can rely on your updated estate plan. This approach reduces delays and may also reduce legal fees.
Read our Blog Post: What Happens When Assets Are Left Outside Your Trust?
Think Carefully Before Informing a Charity About Your Planned Gift
Many people wonder whether they should tell a charity that it has been included in their estate plan. Although there is no single right answer, it is worth thinking carefully before making that decision.
You generally do not need to notify a charity that you have named it in your California revocable living trust. The gift will become known to the organization when your successor trustee contacts the charity after your death.
Some charities have planned giving departments that stay in touch with donors who have expressed an intention to leave a future gift. Those communications are often well-intentioned. However, some people prefer to keep their estate plans private and avoid ongoing contact regarding a future gift.
Your wishes may also change over time. Because a California revocable living trust is generally revocable during your lifetime, you remain free to amend or revoke the charitable gift. You may decide that another organization better reflects your goals, or you may choose to leave the money to family members instead.
Keeping your charitable gifts private can make those future decisions easier. It also avoids creating expectations that may not reflect your final estate plan.
Of course, some donors enjoy developing a relationship with the charity during their lifetime. Others want to discuss how a significant gift will be used. That approach may be appropriate in many situations. However, before notifying a charity that it is a beneficiary of your trust, you should carefully consider whether doing so serves your long-term goals.
Consider Whether the Charity Should Receive a Specific Gift or a Share of the Residue
Many settlors want to leave part of their estate to charity while preserving most of their assets for family members. However, they often do not know what their estate will be worth when they pass away.
For that reason, many people leave a charity a percentage of the remaining trust estate instead of a fixed dollar amount. The percentage may be 50%, 10%, 1%, or even 0.1%. In those situations, the charity becomes a residuary beneficiary because it receives a share of what remains after the trust pays debts, expenses, taxes, and other gifts.
Although that approach may seem simple, it can make California trust administration more complicated. Because the charity has an interest in the trust residue, the successor trustee will often need to provide additional information regarding the administration of the trust. Depending on the circumstances, that may include a trust accounting or a waiver of accounting.
The successor trustee may also request that the charity sign a trust distribution agreement before making the final distribution. Those agreements often address the accounting, proposed distributions, trustee compensation, attorney's fees, and other matters relating to the administration of the trust.
Many charitable organizations have internal procedures for reviewing legal documents. Some send trust distribution agreements to an in-house legal department. Others retain outside counsel to review the paperwork before signing it. As a result, even a relatively small residuary gift can delay the completion of the trust administration.
A specific charitable gift often creates fewer administrative issues. For example, your trust could direct the successor trustee to distribute $1,000 to a charity instead of giving the charity 0.1% of the trust residue.
Generally, a charity receiving only a specific gift does not have the same interest in the overall administration of the trust as a residuary beneficiary. Therefore, the successor trustee may not need to provide the charity with the same level of information that would otherwise be required. Likewise, the charity may not need to participate in the broader trust distribution process.
That does not mean that a percentage gift is the wrong choice. In many situations, it remains the best option because the charitable gift automatically increases or decreases with the size of the trust estate. However, you should understand the additional administrative work that a residuary gift may create before making that decision.
By carefully choosing between a specific gift and a residuary gift, you can reduce delays, lower administration costs, and make California trust administration significantly easier for your successor trustee.
For Smaller Gifts, Lifetime Giving May Be Simpler
Many settlors choose to leave relatively small charitable gifts through their California revocable living trust. While these gifts can have a meaningful impact on the organizations that receive them, they can also create additional work for the successor trustee during California trust administration.
For example, imagine a trust estate worth approximately $500,000. The trust directs the successor trustee to distribute $1,000 to each of four charities. Although the gifts represent only a small percentage of the estate, the trustee must still identify each charity. The trustee must confirm where each gift should be sent. In addition, the trustee must prepare the necessary documentation. Finally, the trustee must maintain records showing that each distribution was completed.
In some situations, it may make more sense for the settlor to make those smaller charitable donations during their lifetime instead of through the trust. This approach allows the settlor to see the impact of their generosity while also simplifying the trust administration process for the successor trustee.
Of course, this approach is not appropriate in every case. Some settlors prefer their charitable gifts to be made only after their death. Others may wish to preserve their assets during their lifetime. However, when the gifts are relatively modest and are unlikely to affect the overall distribution of the trust estate, lifetime giving is an option worth discussing with your California estate planning attorney.
If the settlor decides to make the charitable gifts during their lifetime, it is equally important to amend or restate the California revocable living trust to remove those gifts. Otherwise, the trust may direct the successor trustee to make the same charitable donations a second time after the settlor's death.
By thinking through these issues during the estate planning process, you can reduce unnecessary paperwork, legal fees, and delays while making California trust administration easier for your successor trustee.
Conclusion
Leaving charitable gifts through a California revocable living trust is one of the most meaningful ways to create a lasting legacy. A well-drafted estate plan allows your favorite charities to benefit from your generosity while ensuring that your loved ones receive the remainder of your estate according to your wishes.
However, the way those gifts are drafted can have a significant impact on California trust administration. Poorly planned charitable gifts can create unnecessary delays, increase legal fees, and add work for the successor trustee. In some cases, the cost of resolving those issues may even exceed the value of the charitable gift itself.
Fortunately, many of these problems are easy to avoid. By carefully selecting your charitable beneficiaries, reviewing your estate plan regularly, choosing the appropriate type of gift, and considering whether smaller donations should be made during your lifetime, you can make the trust administration process far more efficient while still accomplishing your charitable goals.
If you are considering leaving part of your estate to charity, speak with an experienced California estate planning attorney. A properly drafted California revocable living trust can protect your charitable intentions, reduce unnecessary costs, and make the California trust administration process significantly easier for your successor trustee.
At Amichai Law, we help California families create estate plans that reflect their wishes. We also make California trust administration as smooth and efficient as possible. If you have questions about charitable gifts, we are happy to help. We can also answer questions about a California revocable living trust or California trust administration. Together, we can create a plan that protects your legacy and your loved ones.
This article is provided for general informational purposes only and does not constitute legal, tax, or financial advice. Every estate plan and trust administration is unique, and the appropriate planning strategy depends on your individual circumstances. Reading this article does not create an attorney-client relationship with Amichai Law. If you have questions about charitable giving, a California revocable living trust, or California trust administration, you should consult a qualified California attorney regarding your specific situation.