Where are all the charitable bequests?

Americans are very generous in life, with two-thirds giving to charity. But only 8 percent remember charities in their wills. One reason: federal tax cuts

from the November 19, 2007 edition

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Not everyone perceives such an unmet craving. Daniel Borochoff, president of The American Institute of Philanthropy, a charity watchdog organization, notes that donors don't receive any immediate tax write-off when they put charities in their wills. And because most estates are exempt from federal as well as state taxes, donors who name a charity in their wills usually aren't reducing the tax that their estates pay after they're gone.

In this environment, Mr. Borochoff says, more donors are taking advantage of vehicles such as charitable gift annuities.

"You can set up an annuity so that while you're alive you get an income stream from the charity, and then you get the tax benefits, too," he says. "So if you're really savvy, you're thinking about these arrangements so you can get the tax benefits before it's too late. Once you're dead, the tax benefits aren't going to be any good."

Bequest giving isn't likely to pick up anytime soon unless Congress reinstates lower thresholds for estate taxes, according to Diana Aviv, president and CEO of Independent Sector, a coalition that lobbies on behalf of nonprofits.

"Charitable bequests, which we believe to be one of the pillars of philanthropy, derived an immense benefit from the estate tax because folks would be motivated to give money to charity instead of being taxed on their estates," Ms. Aviv says. "By substantially changing the estate tax, [Congress has hastened] a drop in bequests."

Some proponents of bequest giving highlight, however, that the practice affords donors several benefits – tangible as well as intangible – even under the current tax code. Those with estates large enough to face taxation (values above $2 million trigger federal tax; amounts above $1 million incur tax in certain states) can indeed cut their estate's tax bills by naming charities in a will or trust. And anyone with charitable intentions gains a measure of control.

Without an immediate financial payoff to encourage the donor in most cases, many put off last-will-and-testament decisions. People get overwhelmed by the prospect of "playing God" in deciding who gets what, Borochoff says, and they also resist confronting mortality.

Yet donors who do take the step of putting a charity in their wills enjoy the fruits of having deepened a relationship with an organization since, as Brown says, "you now have a stake in the organization's health and welfare for the long term, even after you're no longer around." And, she adds, because the process raises the question, "what's most important to me?," donors who take the step inevitably grow in a personal way as a result.

"If you have a passion," Brown says, "it's worth the effort."

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