Jarvis Law Office

Wealthiest Colleges May Be Asked to Pony Up for Financial Aid

Congress will soon be considering a plan that would require a quarter of the gifts to the wealthiest colleges be used for middle-class financial aid, or risk their charitable status – and the tax-deductibility of donations.

According to a recent article in Private Wealth, "Rich College Donors' Tax Break Suddenly in Danger," the idea is part of a tax proposal offered by U.S. Representative Tom Reed, a western New York Republican and vice chair of President-elect Donald Trump’s transition team.  

The plan would apply to the roughly 100 colleges with endowments exceeding $1 billion. Reed wants to make sure that those institutions offer steep discounts to families with annual incomes of $24,000 to $145,000.

President-elect Trump has not endorsed this proposal, but if it passes, wealthy donors may want to revisit their estate planning and any planned gifts to these colleges to make sure that they are in compliance and gifts will be fully tax-deductible.

Reference: Private Wealth (January 5, 2017) "Rich College Donors' Tax Break Suddenly in Danger"

Research before Making Donations to Charities

Giving to charities should only be done after research and planning, according to the Wills, Trusts & Estates Prof Blog "Make the Holiday Season Your Reason for Giving."

There are many reasons to support charities and the holiday season often brings those thoughts to the surface; it is the season to be generous but also the end of the year and thoughts of charitable deductions.

For starters, make sure any charity is registered with the IRS. That helps ensure most of the donated money is used for charitable purposes and you will be able to deduct the gift. You can also research charities online to determine whether they have a good reputation and use donations appropriately.

An estate planning attorney can guide you to charitable giving that could be linked to your estate planning.

Reference: Wills, Trusts & Estates Prof Blog (Oct. 16, 2016) "Make the Holiday Season Your Reason for Giving."

Donation Sparks ‘Academics or Sports’ Controversy

The Independent reported recently on a controversy created by the $4 million charitable bequest to the University of New Hampshire from a former librarian at the school in "University to buy football scoreboard with thrifty librarian's money, outraging critics."

Robert Morin left instructions that earmarked $100,000 to the school library where he worked, but the remainder of the donation was given freely. The university quickly announced how it would spend it.

The plans include spending $1 million on a new football scoreboard, which has outraged some people who would rather the money be spent on academics.

For its part, the university states that in the last years of his life Morin had grown to love football and that he would approve of the plan. The controversy is, of course, part of a much larger debate about athletics and academics at colleges. It is unlikely to be resolved any time soon.

One lesson for donors to keep in mind is that if they wish for their donations to be used in specific ways, then that needs to be stated in the bequest. What Morin would have wanted cannot be definitively known.

By not leaving instructions, it has to be assumed he wanted the university to spend the money however it sees fit.

A qualified estate planning attorney can guide you on any plans for a charitable intent.

Reference: Independent (Sept. 16, 2016) "University to buy football scoreboard with thrifty librarian's money, outraging critics."

Who is Most Likely to Donate?

An opinion by Bill Gates that the first-generation wealthy are more likely to donate generously to charities than the inherited wealthy, sparked a study of his remarks. And, it turns out that he was right, at least as it applies to the ultra-wealthy.

It was determined that billionaires who inherited their fortunes are less likely to sign the Giving Pledge or donate more than $1 million in any given year to charity than those who made the wealth.

Becker's Hospital Review reported on this study in "The self-made rich are more philanthropic than those who inherit wealth."

Those who would like their legacy to include a tradition of philanthropy might want to take this study into account when planning their estates. If people would like their family names to be associated with philanthropy long after they pass away, then they should not leave it up to their heirs to continue charitable giving. Instead, they might wish to consider setting up a foundation that will continue the founders' philanthropic goals for years to come.

Of course, the study does not conclude that those who inherit wealth never give large amounts to charitable causes. They are just less likely to do so than those who create wealth for themselves.

Reference: Becker's Hospital Review (Feb. 11, 2016) "The self-made rich are more philanthropic than those who inherit wealth."

Kansas City Schoolteacher Leaves a Large Estate

Schoolteacher Anna Kurzweil, who made less than $25,000 a year, was not known as a wealthy person. She came from a farm outside of the Kansas City metro area and worked as a teacher after graduating college. She also took a job in a factory to produce airplanes during World War II.

A deeply religious woman, Kurzweil joined a religious order after the war. However, before taking her final vows she left to take care of her mother who had grown ill. Kurzweil returned to teaching and made less than $25,000 year.

Eventually, she retired and lived on a modest pension. Thus, it was a surprise when she passed away in 2012 and bequeathed $2 million to the Jesuits.

Religious News Service reported this story in "Kansas City teacher astonishes with $2 million gift to Jesuits."

Kurzweil's secret to amassing her fortune was simple. She lived modestly and frugally. She invested her money wisely and let it grow. It also probably helped that she never married and never had children.

Reference: Religious News Service (Feb. 9, 2016) "Kansas City teacher astonishes with $2 million gift to Jesuits."

The Charitable IRA Tax Break Is Now Permanent

Seniors have often used donations to charities as a method to reduce the size of an estate for tax reasons as well as philanthropic reasons.

In 2006, Congress made it much easier for many people over 70½ to make donations. They could donate up to $100,000 directly from their traditional IRAs to charity without facing income tax penalties. However, as Congress so often does this charitable rollover exclusion was not made a permanent part of the tax code. It required periodic reauthorization.

It has recently been made permanent retroactive to Jan. 1, 2015 as reported by the Wills, Trusts & Estates Prof Blog in an article entitled "Congress Makes Permanent IRA Charitable Rollover Exclusion." Of course, this does not mean the exclusion cannot be taken out of the tax code by Congress later. It just means that it does not need reauthorization to stay in the code.

While this is a great benefit for elderly people trying to spend down their estates, it is important to remember not to start the spend down process without first consulting an estate planning attorney. Dealing with the estate tax and reducing the size of an estate should be handled as part of a larger estate plan.

The charitable rollover exclusion is the best option for some people but it is a wise course of action to consult with an estate planning attorney for all options available.

Reference: Wills, Trusts & Estates Prof Blog (Dec. 20, 2015) "Congress Makes Permanent IRA Charitable Rollover Exclusion."

A Billion Dollar Estate Faces a Challenge

Yu Pengnian, a 93-year-old real estate executive in Hong Kong, has died and left an estate estimated at more than US$1.55 billion. Pengnian continued his life-long support to charity by leaving the bulk of his estate to a charitable foundation.

All of his assets, except for the contents of two safes given to his grandsons, were directed by will to go to a charitable foundation. His two sons were left nothing in the will. Those sons have filed will caveats with the probate court overseeing the will, which is essentially filing the same thing as a notice of intent to challenge the will.

Ejinsight reported this story in "Heirs gird for court battle over late billionaire's fortune."

It is possible that we will see many similar will contests all over the world in the coming decades as a recent trend has seen the extremely wealthy pledge to leave at least half of their estates to charitable causes. With billions of dollars at stake, it should come as no surprise that the families of these wealthy philanthropists might not always be pleased with giving so much away to charity.

By giving all of his money to charity and leaving nothing for his sons, Yu Pengnian might have made an avoidable mistake. It might have been better to leave something of value to his sons and include a no-contest clause in the will.

Even if there is a no-contest clause in Pengnian's will, which is unknown, it would not have stopped the sons from contesting the will as they receive nothing from it now. On the other hand, if they succeed in challenging the validity of the will, then they will each receive half of the assets of the estate.

Speaking with an estate planning attorney could help reduce the possibility of such challenges.

Reference: Ejinsight (Dec. 10, 2015) "Heirs gird for court battle over late billionaire's fortune."

There is More Than One Way to Give a Cat a Home

Fiorella Scannabissi of Bologna, Italy supplied many of the city's stray cats a home while she was alive and wanted to continue to support the cause after she passed away.

As The Local reports in "Bologna's Cats Inherit Plush Apartment," she loved the stray cats of the city so much that she left her top-floor, seven-room apartment to them. No, this is not a case where the neighbors might consider going to court to stop a messy situation.

The cats will not be living in the home worth US$243,944.

Instead, Scannabissi left instructions for her home to be sold by the local council. The proceeds from the sale will be donated to the city's cattery, which takes care of the local strays.

What this illustrates is the flexibility of estate plans.

This is just one example of what can be done in an estate plan to make sure that what you support in life continues to receive support after you pass away. For Scannabissi it just happened to be stray cats.

By meeting with an experienced estate planning attorney your support for causes may be carried on through an estate plan which is often not complicated.

Reference: The Local (Dec. 3, 2015) "Bologna's Cats Inherit Plush Apartment"

Helping Your Favorite Charity Remain Solvent

One-time donations, either large or small, are always welcome at nonprofit charities but the key to remaining solvent is often annual donations that allow a charity to budget for the upcoming year. However, the annual donation may end when the donor passes and replacing the funding can be a challenge. 

One way to avoid this problem for charities that you support is to leave an endowment for them in your estate plan.

As the Statesman Journal points out in “Today’s nonprofits need forever friends,” you do not need to leave millions in an endowment to make a difference.

If you annually contribute $100 to a nonprofit organization, then leaving $2,000 in an endowment is enough for that level of annual giving to continue in perpetuity. That ratio holds up no matter how much you give annually. An endowment of 20 times an annual gift should allow for the same contribution annually long after you pass away.

Many nonprofits have endowment funds to which you can contribute. For those that do not, you will want experienced help to create one.

An estate planning attorney could be helpful if you consider a charitable endowment.

Reference: Statesman Journal (Nov. 13, 2015) “Today’s nonprofits need forever friends”

Fight over Estate in UK Creates Interesting Battle

Two key facts are not under dispute in an estate battle in the United Kingdom. The facts are that Dorothy Whelan executed a will in 1982 leaving her £1.6 million estate to four charities and a second will was created in 1999 leaving the estate to Hazel Turner.

When Whelan passed away in 2012, the charities sued Turner claiming she created the second will fraudulently. Since she is now 95-years-old and incapacitated due to Alzheimer’s, her son is fighting the battle on her behalf.

The Turner side of the story is that Whelan and Turner were childhood friends and continued that friendship until Whelan passed away. According to this side, the 1982 will reflected the wishes of Whelan’s husband with whom she created mirror wills.

The husband wanted to support the charities, but when he passed away in 1989 Mrs. Whelan changed her mind and wanted to take care of her friend.

The charities, on the other hand, claim that the 1999 will was created under suspicious circumstances. They claim that Whelan may not have been competent at the time. The charities also claim that the alleged witnesses to the 1999 will have no recollection of seeing Whelan and that they thought they were witnessing a will for Mrs. Turner.

The Daily Mail has more on this story in “Charities in court battle with son of frail 95-year-old who 'tricked friend into signing over her £1.6million fortune in will'.”

The case has been taken under advisement by a court with a decision expected in the future. 

Reference: Daily Mail (Nov. 10, 2015) “Charities in court battle with son of frail 95-year-old who 'tricked friend into signing over her £1.6million fortune in will'.”