How to Be Charitable...and Hold Onto Your Money
After they got married, I met with Luke and Jane, both 33, to think through how much they are going to spend and how much they are going to save. Luke is a gentle soul. It took him many years to find work that he could feel good about, and he currently has a good-paying job. He wants to keep working forever.
Part of him seemed shocked, although happily so, by his fortunate financial situation. He feels that he and his wife together make a lot more money than they need.
If he knew their finances were always going to be the way they are now, he’d give more money away. He gets a lot of satisfaction from financially supporting changes he feels are positive in the world.
One of the things that Jane loves about her husband is his philanthropic bent. But she's also concerned they might give a lot of money away and then regret it. They plan to start a family within the next five years. How can they decide to give money away when they might need it later?
I left our meeting somewhat frustrated, because I didn’t have a great answer to their conundrum.
Meanwhile, I was working on a book about connecting all areas of finances with meaning. Previous authors have explored how to consciously spend or invest. But I wanted to write about not only spending and investing, but also taxes, estate planning, and insurance — all areas of personal finance.
The book idea sounded good. Then I had to write the thing. I know a lot about the subject, but when I got to the chapter about estate planning, I drew a blank.
After what I deemed an appropriate length of procrastination, I started writing the dreaded estate chapter. I found myself thinking about Luke. At the same time, I was reviewing everything I do when I talk to clients about estates, focusing on the angle of more meaning. More meaning.
Then some ideas started sparking.
Reviewing 401(k) beneficiaries, for instance, is something I talk about during estate planning meetings. Seems mundane, but wait, there could be something there. This is cool, I thought as I wrote.
What if Luke designated someof his 401(k) — or all, if he really wanted — to charity? Say, the National Parks?
It wouldn’t cost Luke a dime now. Plus, it’s totally revocable before he dies. If and when Jane and he have kids, he’ll revoke the designation. So during his critical period of family financial responsibility, he can leave his 401(k) to Jane and the family. But if it’s just Jane and him, setting aside some money in case of his untimely death is one answer to the conundrum — how to give more without regretting it.
Other details I uncovered when I wrote and researched this strategy: Larger, well-established charities are more likely able than smaller ones to handle a 401(k) donation. The theater company down the street generally won’t.
Setting up this designation doesn't cost anything; Luke doesn’t have to talk to an attorney. Jane will have to sign off on it, but she’s fine with it.
Other perks? He might be able to designate what his 401(k) donation is used for, in the case of his death, and the charity might recognize him on a plaque at his favorite park. Charities vary on how they recognize these gifts. The recognition isn’t just for ego gratification; it encourages other people to give, too.
Luke doesn’t have to risk their retirement, and I’ve got a good idea for my estate chapter.
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Bridget Sullivan Mermel helps clients throughout the country with her comprehensive fee-only financial planning firm based in Chicago. She’s the author of the upcoming book More Money, More Meaning. Both a certified public accountant and a certified financial planner, she specializes in helping clients lower their tax burden with tax-smart investing.