Without obvious heirs, Childfree people have decisions to make as it comes to their estate plan, or what happens to their money when they pass away. It's common to see some of the leftover money go to family like siblings or nieces and nephews, but what's just as common is making an impact or establishing a legacy.
Childfree people make up the majority of charitable giving through estate documents as they want some of their hard-earned money going to leave an impact on the world and it turns out they are incidentally the ideal type of person to affect change through charity.
Giving in the Childfree Community
Childfree people have built life circumstances for themselves that make them particularly able to give back to their communities. They often have more time, more financial resources, and no obvious heirs to give their money to.
More time allows for the more traditional ways of giving back to your community. This might include things like creating awareness, donating time through volunteering, or even something like writing public officials about specific causes. Additionally, people without children have more time to spend on hobbies and interests that are outward-looking from the family unit and may result in more community involvement.
More financial resources allow for three primary paths of charitable giving. The first is the more obvious and that is doing things like making annual cash donations or being a checkbook donor. Additionally, people like this may not want birthday gifts and instead ask for donations to their favorite charity.
The second path for those with extra financial resources is being more conscious around where their money is spent. They can afford premium brands that give back to the community like Toms, Bombas, or Patagonia.
Lastly, Childfree people with plenty of money may decide to make large gifts in their life or through their estate plans. According to Pew Research, roughly 50% of married people without children have a charitable beneficiary in their estate plan and 30% of unmarried without children do. Compare that to only 15% of people with children and only 7% of people with grandchildren. Simply put, the more descendants you have, the less likely you are to give your wealth away.
What to Give
There are numerous ways to give to charities including with time through volunteering, creating awareness, lending your expertise, or participating in toy and food drives. But I want to talk about a more planned and intentional way of giving and the assets that are in play when giving large gifts to charity.
Childfree people are in a unique position to give their real estate to charities, particularly their primary residence. Giving away a home is a massively generous gift, but it's not outrageous if one is particularly passionate about a cause and doesn't need it or have anyone else to give it to.
Homes can be given as outright bequests at death or something called a life estate is quite common. A life estate allows you to continue living in the house for the remainder of your life and the charity receives it at your death.
A less likely asset for the Childfree is life insurance. Many people without children don't need much or any life insurance and when they do, it is normally for a short period of time. That said, life insurance can be used as a way to leverage a gift to a charity and potentially make a bigger impact than the dollars spent on the policy.
Outside of those two differences for the Childfree community, the most common gifts are appreciated stock or mutual funds and cash. Appreciated stock has a particular benefit of being able to gift it without selling it and therefore the capital gains tax can be avoided in addition to the tax deduction being claimed.
When to Give
It has historically been more common to give to charity when one passes away instead of while living. More and more people are challenging this idea and the delay of the charitable gift. They want to start making an impact immediately. There are benefits to giving at death, but intriguing aspects of giving while alive, as well.
Giving at Death:
- You are able to live your life with more confidence and security in your financial situation
- May allow you to reach financial independence faster if you delay your intent to give until death
Giving During Life:
- You can make an impact immediately on the organization and cause you are supporting
- You can see the impact of your gift and the change it helps make
It's increasingly common to see people want to see the impact they've help make and meet the people that benefit from their generosity. This unfortunately doesn't happen when giving at death and is the primary driver in the shift towards gifting while living.
Benefits of Giving
You are obviously helping a great cause! As a matter of fact, there are many people within the philanthropic sector that believe your desire to help others should be the primary driver every single time you give. If not, some would argue it doesn't qualify as philanthropy.
Selfishly, another benefit is the impact it has on you as the giver. Giving to charity makes you happier and doing so activates the pleasure centers in our brains. Give to benefit a cause and get a good feeling out of it, too!
Tax benefits are the most touted benefit when speaking with an advisor, but they are really just a secondary benefit. No one gives in order to get the tax benefit as it really is meant to just encourage giving. That said, the tax benefit can be meaningful when making gifts.
You can get tax deductions when giving to charity! A tax deduction is when your income is lowered in the eyes of the IRS for tax purposes. For example, if you make $100K per year and gave $1K to charity, the IRS would only require you to pay taxes on $99K. There are limits on how much you can take in deductions, but it is pretty difficult for most people to hit them.
A potential snag on charitable giving is that many people don't surpass the standard deduction when giving to charity, so they don't actually get any tax benefit. There is a strategy called "lumping" gifts on order to ensure you do receive a benefit.
You can either save money for a couple years that you would normally gift and give it all in one year or some people utilize an account called a Donor Advised Fund. This type of fund allows you to make a contribution in one year, get the tax deduction for that year, then distribute the dollars in future years as you see fit.
Childfree people often have more time, money, and ability to give to charity. It's important to start planning early as to how you will give to charity to avoid pitfalls and make the most impact possible. You'll feel good about giving, make an impact on the world, and potentially get a nice tax deduction!