Even with the 2024 election behind us, estate planners will continue to have clients who want to promote partisan interests by funding political causes in their estate plans. Unlike charitable gifts made to favored social causes, lifetime and legacy political giving is subject to restrictions, prohibitions and reporting requirements, and sometimes, a fiduciary is required to balance competing considerations in administering the gift.
Here are seven considerations practitioners should keep in mind when drafting wills and trusts for clients who want to make legacy political gifts:
Log in. A client may say they want to give to a “pro-American political action committee (PAC),” but there may be five or six PACs with that or a similar name on file with the Federal Election Commission (FEC). (There is no copyright protection when choosing names for political organizations.) The best practice is to go to the FEC website (www.fec.gov) to identify the political committee to which the customer refers and include its full name and FEC identification number in the language of the gift. Example: “Upon my death, I give the sum of $200,000 to the Committee to Be Pro-American, Inc., FEC ID number C00004123.”
Advise. Tell your client what the annual or per-election contribution limits are for the political organizations they favor and whether the contribution is tax-deductible (most are not). Note that the FEC has ruled that the decedent's estate may benefit from the indexed contribution limits in effect at the time the contribution was made, rather than the year of the trust's execution or the year of the decedent's death.
Define. Consider gifts of cash rather than portions or percentages of the entire estate or trust. A set amount will allow the trustee to know exactly how much money the estate or trust will need to meet a contribution.
Direction. Some clients may wish to give the trust discretion as to the recipient of a future contribution, assuming the trustee would “know what I would like”. This is permissible but not advisable beyond a certain point. The risk is that the FEC may consider a fiduciary that exercises too much direction and control to be a donor. Phrases like: “whoever represents greater Cincinnati in Congress” or “any future Republican candidate for Senate in Ohio” are good examples of properly worded gifts, but “whoever is the most liberal candidate in the presidential primaries” leaves a lot of discretion in your hands. the trustees.
Choose. Political organizations can accept illiquid assets as contributions, but often prefer not to. Political committees rarely accept real estate or personal property as a donation, and many committees find it politically risky to accept cryptocurrency as a donation. A donor who gives appreciated stock to a political committee will be subject to capital gains. Most political committees immediately sell the shares they are given to avoid any valuation while they are holding the gift.
Communicate. Without revealing names or amounts, consider talking to the treasurer of a political committee that will benefit in the future to make sure the identifying information you have is correct. The names of the FEC treasurers and contact information are found on a Committee's FEC statement of organization. Political committee treasurers are generally knowledgeable and often handle donor questions.
Explain. Gifts to a political committee are almost always made with one purpose: to fund political activities. There are two important exceptions: (1) large gifts to a National Party Committee; and (2) gifts to an Internal Revenue Code Section 501(c)(4) organization that may have a general operating account and a separate political account. Wills and trust instruments must clearly identify the recipient, the amount, and the account or purpose for which the money is intended.
*This article is an abridged summary of “Is your Trust Agreement politically correct??” which appears in the December 2024 issue of Trusts & Estates.