Put restrictions on your large charitable gifts for added peace of mind

If philanthropy is an important part of your legacy, consider taking steps to ensure that your donations are used to fulfill your intended charitable purposes. Indeed, outright gifts can be risky, especially large donations that will benefit a charity over a long period of time.

Add restrictions to your gifts

Even if a charity is financially sound when you make a gift, there are no guarantees that it won’t suffer financial distress, file for bankruptcy protection or even cease operations down the road. The last thing you want is for a charity to use your gifts to pay off its creditors or for some other purpose unrelated to the mission that inspired you to give in the first place.

One way to help preserve your charitable legacy is to place restrictions on the use of your gifts. For example, you might limit the use of your funds to assisting a specific constituency or funding medical research. These restrictions can be documented in your will or charitable trust or in a written gift or endowment fund agreement.

Depending on applicable federal and state laws and other factors, carefully designed restrictions can prevent your funds from being used to satisfy creditors in the event of the charity’s bankruptcy. If these restrictions are successful, the funds will continue to be used according to your charitable intent, either by the original charity (in the case of a Chapter 11 reorganization) or by an alternate charity (in the case of a Chapter 7 liquidation).

Research potential charities

In addition to restricting your gifts, research the charities you’re considering to help ensure that they’re financially stable and use their funds efficiently and effectively. One powerful research tool is the IRS’s Tax Exempt Organization Search (TEOS), found at https://bit.ly/43MVQ3e. TEOS provides access to information about charitable organizations, including newly filed tax returns (Forms 990), IRS determination letters and eligibility to receive tax-deductible contributions.

If you’d like to incorporate charitable giving into your estate plan, please contact us. We can explain your options.

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