To put it simply, a charitable gift can be defined as the giving of wealth to a charitable cause. Charitable giving occurs when a donor bequeaths a portion of their assets to a charitable cause, such as a non-profit charitable organization.
A charitable organization is one that exists to help individuals or communities in need by using donations and raising funds to address various needs, based on the mission of the organization.
An example of this would be how a charitable organization may provide food, water, shelter, education, or other necessities to a city’s population facing houselessness. A charitable organization may also provide a specific need based on a donor’s wishes. An example of this would be how a donor may wish to create or donate to a charitable organization providing art supplies and education to the youth in their area.
It is important to note that charitable giving can be done either in life or death, as a person’s estate may continue to donate after the death of the donor. Legally speaking, charitable giving is most commonly distributed through either a will or a charitable trust. Although charitable giving is thought to arise from the compassion, generosity, and benevolence of a donor, it is imperative to note that charitable giving also provides tax breaks for the donor, or the donor’s heirs.
The term trust refers to a legal relationship in which one party, who is known as the trustor or settlor, transfers property into a trust that is managed by a second party, known as a trustee. This is done for the benefit of another party, who is known as the beneficiary. Similar to other trusts, a charitable trust is set up when the donor places some of their assets or property into a trust intended to be donated.
Generally speaking, a charitable trust is managed by a charitable organization. This is set up by the trustor, or otherwise exists to manage trust funds on behalf of the specified beneficiaries. The most notable difference between a charitable trust and other trusts is that a charitable trust is always considered to be irrevocable. What this means is that once a valid charitable trust has been created, the donor may not later revoke the trust or reclaim their property interests in the trust property.
In order to be considered valid and legally binding, the beneficiaries named in the trust must be indefinite. An example of one of the most common charitable trusts would be a charitable remainder trust. Additionally, the charitable trust must be created specifically for the purpose of benefiting the public good.
Some examples of common charitable purposes include, but are not limited to the following:
- Advancing education or knowledge, such as funding music or art education or creating scholarships;
- Religious purposes, such as trusts created for churches, mosques, temples, etc;
- Promoting health and wellness within a specific community, such as funding a community garden; and/or
- Advancing other public interests such as trusts created to maintain public parks, provide funding to museums, create or maintain public art installations, etc.
I Pledged To Make a Charitable Gift, But Have Since Changed My Mind. Will I Be Forced To Pay?
Whether or not you will be forced to follow through on a pledge to make a charitable gift depends on a few important factors. When considering the issue, the court will ask the following questions:
- Was There a Contract? Whether your pledge was a mere gratuitous promise, or if a binding contract was formed, will be one of the biggest factors considered. If all of the elements of a binding contract are met, you will most likely be held to your pledge and will need to follow through as promised.
- However, if you wish to go back on your pledge because you feel that the charity has not fulfilled their promises, it may be possible for you to breach the contract without facing any legal penalties. Additionally, other breach of contract defenses may be available to you. An example of this would be if your pledge was made while you were intoxicated, as charities are rather notorious for hosting open bar fund-raising events;
- Was There Reasonable Action? Did your promise, although not necessarily a legally binding contract, reasonably induce action from the charitable organization? An example of this would be if you promised a set amount of money to fund a specific project, and the organization proceeded with the project depending on your promise to cover the costs.
- Whether or not the court determines that your promise was not a contract, you could still be forced to pay. This is because under the doctrine of detrimental reliance, a court can still order you to honor your pledge. However, this will only be ordered if the charity reasonably relied on your promise to their detriment, and the only way that injustice can be avoided would be through enforcement of your promise; and
- What Does Your State Say About Charitable Giving? Does your state maintain any specific laws or statutes associated with charitable giving? This is an important consideration as some states have adopted laws which clearly solve this problem. In some states, all promises of charitable gifts will be enforced; in others, a formal writing is required for enforcement.
What Else Should I Know About Charitable Giving?
As previously mentioned, there are significant tax breaks available to the donor, or the donor’s heirs:
- Income Tax Deductions: Setting up a charitable trust provides an income tax deduction, which is spread over five years for the value of the charitable donation;
- Reduction of Estate Taxes: If a donor’s estate is large enough to be subject to a federal or local estate tax when they die, they can shift assets or property into a charitable trust in order to avoid paying estate taxes. This is because any assets that are transferred into a charitable trust will not be included in a person’s taxable estate; and
- Reduction of Capital Gains Taxes: Generally speaking, if a person sells a piece of property that has increased in value since the time that they acquired the property, they would have to pay a capital gains tax on the property. However, if that property is instead placed in a charitable trust, the charity can sell the property without being required to pay a capital gains tax. Then, the donor can receive a certain amount of income in return. This is due to the fact that charities are not subject to capital gains tax.
Creating a charitable remainder trust begins when the trust creator selects or creates a non-profit charity. They will then donate their assets or property into the charity’s trust account. The charitable organization themselves will serve as the trustee, and manage the trust property and assets in such a way that it produces income.
That income will then be payable to the trustor for a specific period of time, or until the death of the donor if no time period has been designated. At the end of the period of time designated, or upon the death of the donor, the property and assets will then become the sole property of the charitable organization. The charitable organization will continue to invest the trust property and assets for the benefit of the public good, as per their mission and the wishes of the deceased donor.
Do I Need An Attorney For Issues Associated With Charitable Gifts As Contracts?
Charitable giving, especially rescinding charitable giving, can quickly become complex and lead to various legal issues. If you are involved in any issues associated with charitable gifts as contracts, you should consult with an experienced and local contract lawyer.
It is advised that you work with an area attorney because state laws can vary widely in terms of charitable gifts and contracts. An experienced and local estate attorney can help determine whether a contract for charitable giving exists, as well as provide you with legal advice regarding your next steps. Finally, an attorney will also be able to represent you in court, as needed.