Our Monthly Tip, as featured in Family Lawyer Magazine:
Thanksgiving can be an opportune time to bring philanthropic plans to the forefront; to give back and express thanks to charities we support for their tireless efforts. Americans continue to be very philanthropic, even despite the pandemic, as the 2021 Giving USA Study1 noted that Americans donated $485 billion in 2021 to nonprofit organizations.
While Americans continue to give, families who are going through a life change such as a divorce should be assessing their current and future philanthropy as they go through the separation process. These couples may have to make some key decisions as we approach year end.
Fortunately, the divorce process usually involves working with experienced legal and financial professionals. One area that should be part of this process is the review of the couples’ philanthropic plans. These could vary from a very simple philanthropic plan to a more complex plan where a family foundation is involved.
Developing a new philanthropic identity after divorce
Some couples have a basic charitable giving plan where they sit down and decide together which nonprofits to support. This process will change as a couple maneuvers through the divorce process, with each person needing to develop his or her own giving plan. Divorcing individuals should think about what causes they want to support now and develop their own philanthropic identities. Typically, this new plan will require tax planning and a review of any appreciated/low-basis securities.
Five key considerations for basic giving plans:
- Assess your giving plan and giving budget. Do you need to cut back in the short term? A sophisticated financial advisor can run financial projections to help answer questions related to your future budgetary and other financial needs, including your future philanthropic budget after a divorce.
- Reach out to the charities you support to provide a new address and contact information.
- Check to make sure any recurring giving programs are updated since they are often connected to a specific credit card, and that card may have been canceled.
- Make sure you have discussed any pledges you have made and memorialize your agreement as to how the pledges will be satisfied after divorce.
- Reassess the charities you would like to volunteer with.
Three key considerations for more advanced plans:
Some couples may have been very engaged in their philanthropy and had a more formal philanthropic plan. Here are 3 key considerations that may apply to more sophisticated plans:
- Donor advised funds: A couple may have set up a donor advised fund (DAF), a very common technique that allows a donor to set up a personalized charitable account to streamline their annual charitable giving. Contributions to a DAF generally qualify for an immediate charitable income tax deduction and can grow tax free until the donor recommends grants to the charities they want to support at a pace they determine. One option may be to split the DAF into two funds. If this is the solution, each spouse will need to decide on his or her own DAF giving plans.
- Family foundations: Some families have set up family foundations, which are more complex structures. A foundation is usually established for a family to have a more formal giving program, providing them with greater flexibility and control. Other family members are often involved, so determining how to proceed with a foundation after a divorce can be complex. If it is not practical for the couple to continue to work together, your attorney will have to consider other options, including:
• Negotiating for one of the spouses to maintain the foundation
• Potentially splitting the foundation into two foundations
• Terminating the foundation by distributing its assets to one or more charities
When Bill & Melinda Gates announced their divorce in 2021, they also announced that they would continue to work together at the Gates Foundation. It was reported that Melinda agreed to resign as co-chair and trustee and, if after two years, either one of them decided that they could not continue to work together, she would receive personal resources from Bill to continue her philanthropic work.2 For families that decide to split the foundation, it will be important to seek tax and legal advice.
- Planned giving commitments: It is important to review any planned giving commitments. For example, charitable bequests for named nonprofits in estate planning documents may need to be updated. Even if bequests still reflect current intent, the nonprofit may need to be notified if, for example, the couple has been recognized in a legacy society, a named fund, or a named building, and they no longer wish to be recognized as a couple. Charitable beneficiary designations in retirement plans, insurance, and other accounts should also be revisited to be sure they reflect each person’s wishes post divorce.
Establishing a new philanthropic identity post divorce: The bottom line
Divorce is a very stressful time for couples, and the key focus is often the division of assets and liabilities. Make sure the philanthropic plan is on the list of items to take charge of. Sophisticated financial professionals can help guide you through these issues with the data and analytics that can be foundational to establishing your new philanthropic plans after divorce.
Please visit our Matrimonial and Divorce Advisory Solutions resource page for more timely divorce planning content.
This article is for general information only and is not intended as an offer or solicitation for the sale of any financial product, service or other professional advice. Wilmington Trust does not provide tax, legal or accounting advice. Professional advice always requires consideration of individual circumstances.
1 Giving USA Study 2022; The Giving Institute, Chicago, IL.
2 Bill Gates Can Remove Melinda French Gates From Foundation in Two Years, July 7, 2021: https://www.nytimes.com/2021/07/07/business/bill-gates-melinda-gates-divorce-foundation.html