You can't take it with you: Estate planning with a conscience

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Article Seniors Social Justice
None of us want to think of the world going on without us. But if we plan wisely, we can help to leave it a better place for the next generation.

For Charlie Krystofiak, the reasons for including his Catholic school in his will are personal. When he was growing up in 1950s San Francisco, his father didn’t want him to attend parochial school. So his homemaker mother became one of the only women on the block to work a day job so that Charlie and his brother could attend St. Ignatius College Preparatory School.

These days, Krystofiak, 62, volunteers on St. Ignatius’ support team for alumni planned giving. “I have several retirement plans and insurance policies,” the retired insurance salesman explains, and the staff at St. Ignatius “thought it would be a good fit.” Krystofiak plans to make St. Ignatius the recipient of one of his individual retirement accounts (IRAs) when he passes away.

Planned gifts are charitable donations that are worked out in advance by making the charity an inheritor of a retirement account or naming the charity in a will. Secular nonprofits are increasingly promoting this type of giving, as are a number of Catholic organizations. At a time when middle class people feel strapped and charitable giving is recovering from a steep decline, planned gifts offer a safe option for ordinary people who want to make a real impact.

“It makes sense to leave taxable assets to charities, and nontaxable things to family, friends, and relatives,” says Krystofiak. If an IRA or 401(k) is left to someone other than a surviving spouse, it can be subject to income tax, and, depending on local state laws, estate tax. But when retirement accounts are left to charity, they are tax-exempt, so St. Ignatius can receive the full remaining amount in Krystofiak’s IRA.

Krystofiak fits the standard profile for a Catholic who engages in planned giving: He has donated many volunteer hours and personal funds to Catholic education in his life. Now Catholic education is a part of his plan for after he dies. The other charity where he donates and volunteers, Canine Companions for Independence (CCI), provides service animals to disabled people. He has designated CCI as a beneficiary of one of his IRAs as well.

 “Most of our gifts come from average folks, rank-and-file Catholics,” says Richard Balmadier, director of planned giving for Catholic Relief Services (CRS), which provides emergency relief and development programs in countries worldwide. “It’s not unusual for me to see a six-figure gift come in as a bequest, look at our database, and find this person gave us $20 a year for 20 years. . . . They can hold on to these resources during life because they’re not sure if they’re going to need them, and that really gives donors an opportunity at the end of their lives to make a huge philanthropic gift. At the end of a lifetime, a modest home might be $200,000, a modest IRA $100,000—but that’s three $100,000 gifts.”

Till death do us part

Krystofiak’s proactive approach to his estate plan is rare in the United States. Nationwide, nearly 60 percent of Americans have no will whatsoever. This includes 64 percent of baby boomers, according to a 2012 poll by the Associated Press and LiveStrong.com. It also includes a full 50 percent of Americans with children, reports online legal service RocketLawyer.com, which conducted a similar poll in 2011.

Most Americans without wills believe that they don’t have enough assets to make the legal document worth the cost. But these days, the Internet has made the process fast and cheap. Websites like LegalZoom and RocketLawyer can create a legal will for $20 to $50 within 10 to 15 minutes. While many people may not have assets to bequeath in their wills, the document is the all-important vehicle for naming guardians for children, providing instructions for one’s end-of-life care, and appointing a trusted person with power of attorney.

In the case of baby boomers, the most common reason given for not drafting a will is the desire to avoid thinking about death. Chicago estate attorney Katarinna McBride urges her clients to think differently about the legal document. “The concept of your legacy is not a death concept. It’s really a lifetime concept,” she says. “What do you stand for? What does your family stand for? You really need to impart your lifetime values.”

When it comes to the 40 percent of Americans who do have wills, few have included charitable organizations in their estate plans. The number of charitable bequests has dropped by 46 percent since 1998, thanks in part to estate tax cuts that reduce the incentive to give. According to Indiana University’s Lilly Family School for Philanthropy, only 8 percent of Americans have named a charitable organization in their wills. 

As it stands now, the percentage of Catholics who have put the church in their wills is around 6 percent, with the percentage who have left money to charities aimed at the poor and disadvantaged likely far lower, says Christopher Reilly, a certified estate planner and author of Estate Planning for Catholics: How to Lovingly Share Possessions Beyond Your Lifetime (Xlibris). Reilly attributes this to poor communication on the part of parishes and poor infrastructure for planned giving in many charities.

In contrast, Ted Rosean, a securities broker and estate planner based in Wilmette, Illinois, points to the successful model seen in other faith communities. “Many synagogues in the northern suburbs of Chicago advertise the slogan ‘Just 5 percent of your estate endows our future,’ ” he says. “It’s important to remind people that they don’t have to give everything to the church—a small amount can make a big difference.”

Generational dynamics might also play a role in the decline of planned gifts. Baby boomers as a group give significantly less of their income than their parents did, and the Lilly Family School has found that this correlates directly with their level of church engagement, which among Catholics has declined steadily since the 1970s. Kathryn Horning, the CEO of the St. Jude League and Claretian Publications (which publishes U.S. Catholic), reports that for many decades the religious order of the Claretian Missionaries has helped fund some of its ministries, including the National Shrine of St. Jude, through donations to its St. Jude League from devotees to the patron saint of seemingly hopeless cases.

But recently the Claretians have launched a new, more cause-based effort called the Claretian Initiative. “We’ve been building the initiative over the last few years to increase awareness on a national level to younger demographics,” says Horning. As their engagement with parishes has waned, younger Catholics have become more cause-oriented. So the initiative directly promotes the causes for which the Claretians work—violence prevention, youth programs, health, affordable housing, and urban education. “This group of priests is so busy doing what they do that they’re not concerned about letting people know what their affiliation is,” says Horning, whose role includes spreading the word.

Giving that hurts

For Christians who are called to serve the least of these, and particularly Catholics, whom Pope Francis has called to be a “poor church for the poor,” it makes a difference what type of nonprofits they choose to remember in their wills. Former U.S. Secretary of Labor Robert Reich recently published several scathing attacks on current tax benefits for charitable giving. He noted that too much of American philanthropy goes to nonprofits and charities that do not actually help the disadvantaged or reduce economic inequality. Wrote Reich in the Los Angeles Times, “I’m all in favor of supporting the arts and our universities, but let’s face it: These aren’t really charitable contributions. They’re often investments in the lifestyles the wealthy already enjoy and want their children to have, too.”

There is another wrinkle to the not-really-charitable gifts. Catholic Charities, the fifth-largest nonprofit in the country, distributes $4.7 billion to poor and disadvantaged people every year. But 62 percent of the funding Catholic Charities receives comes from federal, state, and local governments. So arguably every time someone gets a tax deduction for contributing to an art museum or an elite private school, funding for Catholic Charities is potentially endangered. The same holds true for Catholic hospitals, which take a disproportionate number of Medicaid and Medicare patients.

Meanwhile, as some nonprofits work assiduously at containing their costs—CRS and the Claretians have an astonishingly low overhead of 5 to 6 percent—the leadership and administration at “competing” organizations, Catholic and others, sometimes enjoy lavish salaries and benefits. For example, the CEO of the American Cancer Society makes $2.1 million a year, while the chief investment officer for the University of Notre Dame makes $1.5 million a year, as reported by the Chronicle of Philanthropy.

Jesus famously told his disciples to leave their families and follow him; in Matthew 19 he also told the wealthy young man to sell all his possessions and give the money to the poor. Although it’s very rare, there are individuals who leave a disproportionate amount of their estate to the church or to charity and very little or nothing to their own children.

Such was the case with Yale professor James Boa-Teh Chu, who, 10 years before his death at the age of 85, decided to remove both his son Paul and Mother Teresa’s Missionaries of Christ from his will. Instead, he named the infamous Legion of Christ as the sole beneficiary of his $1 million estate. Paul Chu is now suing the Legion for his inheritance plus $10 million in damages. He argues that the Legion targeted and manipulated his elderly father, whose mental state had fallen into decline. Chu also argues that his father never would have given money to the Legion of Christ if he had known that its leader and founder, Father Marcial Maciel Degollado, had been found guilty by the Vatican of multiple counts of sexual abuse against seminarians. Maciel also fathered children with at least two different women. 

Chu’s experience highlights why Catholics should investigate charitable organizations before giving money. The Legion of Christ’s founder, Maciel, was one of the most successful fund-raisers in the history of the Catholic Church, persuading donors that his organization would promote conservative social values for modern Catholics. One wealthy widow was convinced to give him $30 million. At Maciel’s behest, the Legion also viciously fought the charges of the abused seminarians.

According to Reilly, any kind of pressure to make a planned gift or bequest should be a red flag. Catholics should solicit help from friends and relatives in investigating charitable organizations before they make a commitment through a planned gift.

How much is too much?

Chu’s lawsuit also raises the question of whether Catholics should really do as Jesus says in a different context and “hate their families” in their wills.

Lucia Silecchia, a Catholic University of America law professor who studies the intersection between estate planning and Catholic social thought, has argued that in death, one should care for those whom one cared for in life. She cites Pope Leo XIII’s famous 1891 encyclical Rerum Novarum (On Capital and Labor), in which the pope argued that one of the principal duties of a property-owning father is to make sure that children who are dependent on him during his life are cared for after his death. 

Silecchia advises that, in addition to children and grandchildren, Catholics should leave estate money to extended family, friends, and neighbors who have disabilities or are otherwise vulnerable. But she proposes that if loved ones have strong finances, all bets are off.

In order to avoid hurt feelings and lawsuits over planned gifts to charity, communication is key, says Silecchia. “The thing that can be enormously helpful legally and spiritually is to explain to next of kin why you [named a charity in your will],” she says. “Tell them, ‘I worked with people who helped me. I had a job where I was able to earn money. I also have an obligation to help other people. That’s why you’ll find in my will I did X, Y, and Z.’ It also might inspire children to replicate that in their own life. They’ll think, ‘Gee, that was important to Mom or Dad.’ ”

What is the right amount of money to leave to charity versus friends and family? Balmadier of CRS cites the common notion of tithing. “I don’t think if it’s 10 percent that anyone would raise eyebrows,” he says. That’s true for most people, although Jim Hellige, a Chicago estate attorney, says that for multimillionaires the figure is typically 30 to 50 percent. Regardless of a person’s income, a University of Georgia study found that whether people had grandchildren was the primary determinant of whether they would include a charity in their will at all, with most grandparents choosing to cut charity out.  

The right amount of money to leave an heir, according to attorney McBride, is enough to “alleviate some of their struggle without removing motivation or spoiling their drive.” Warren Buffett has pledged to give 99 percent of his billions to charitable causes, saying that he will leave his children “just enough so that they would feel that they could do anything, but not so much that they feel like doing nothing.” 

Passing it on

For charities like CRS and the Claretians, simple will bequests are by far the most common type of planned gift. But several other types of planned gifts help donors to make money go further through strategic investment. One such option is Charlie Krystofiak’s choice to name specific charities as the recipients of his retirement accounts.

Another increasingly popular planned gift is a charitable gift annuity, which is similar to an IRA or 401(k), but with lower income taxes. Donors offer a charity a certain amount of their savings to invest, and then the charity pays the donors 4 to 6 percent of the principal each year. When the donor passes away, the charity keeps whatever money is left. Donors can also choose to purchase stock or IRA plans with religious investment groups, such as LKCM Aquinas or Ave Maria Mutual Funds. Another option is to make a charity a beneficiary of a life insurance policy.

While many parents fret that they are depriving children or grandchildren by leaving some of their money to social or religious causes, Reilly reports that “family members are understanding and often proud of a donor’s charitable estate contribution. A lot of potential heirs of an estate feel they are partly involved in making the gift because it might have otherwise gone to them.”  

Charity is, after all, a virtue that many Catholic parents want to transmit to their children, and one that many children are happy to receive. Sister Peggy Scarano of the Dominican Sisters of Sparkill, New York tells of a father who phoned her to explain that he and his wife would be setting up a charitable trust so that their children would continue to give to the Sisters and other groups after he and his wife passed away. “He said, ‘You know, Sister, one of the things that my wife and I want to teach our children is that they need to give back. They can’t just keep everything for themselves . . . ’ I thought it was a very interesting concept, that whatever way the document was written up, the children would keep dispensing money until it was spent down.”

For Monica Schumann, the central importance of charity was communicated to her by the way her parents lived. Growing up in a small town in the United Kingdom, where her parents owned a grocery store, she watched her father go out of his way to help local residents who were experiencing hardship, giving both money and food when he himself was not a rich man. “They always taught us that it wasn’t enough to just follow the rules and go to Mass on Sundays,” she says. “My parents lived the gospels, so there was no hypocrisy between what I heard and what I saw.”

Raising her own children in the United States, Schumann developed a tradition of giving within her family by participating in the CRS Rice Bowl every year. Her six children appreciated the significance of putting money in the rice bowl, sharing a simple meal, and then leaving the rice bowl on the church altar.

Schumann first developed an interest in the welfare of people in other countries during the 1960s while working at the World Health Organization. It was there that she learned that one third of the world lived without clean drinking water. Later she heard of some water development programs that CRS had started and began giving to the charity, “which became the one Catholic constant in my life” as she moved around the globe.

Schumann succeeded in transmitting her charitable values to her children: Today nearly all of them are involved in a profession that increases social justice in the world. It was natural for Schumann, who already has a charitable annuity with CRS, to include the organization in her will. “I didn’t ask my children. I just said, ‘Bill and I will leave everything to each other and then some to [you] and a portion to CRS.’ ” Following her announcement, three of her children made donations to CRS in her honor.

This article appeared in the August 2014 issue of U.S. Catholic (Vol. 79, No. 8, pages 28-32).

Image: Flickr photo cc by Ken_Mayer