Giving for beginners: real philanthropy—not simply charity—is in its infancy in Latin America. But that's changing fast

Latin Trade, Jan, 2005 by Greg Brown

For individuals, however, just getting started can be tricky. First and foremost, understanding the law is important, say attorneys and private bankers. In many Latin America countries, domestic law dictates what percentages of an estate must be given to which survivors, a concept known as forced heirship. For example, a widow or widower would be entitled to half--no more, no less--then the remainder is divided by the number of children.

If the law allows for a will that differs from forced heirship, then a lot of what happens after death depends on actually having a will. Dying intestate--without a will--triggers decisions that will be made by the state, not the surviving family, and almost certainly not to their benefit.

Naming a charity is key. The name must be clear. If the charity has local, national and international divisions, you must say which part gets what. It's also important to make clear if the gift has restrictions. A donation to a hospital would likely end up in the general fund unless the donor specifically directs the money is to be used for research, to build a wing or to buy equipment for a cancer ward. Naming a substitute charity is important, too, since charities, like businesses, can close their doors or be absorbed into other institutions.

Unprepared. Tax regulations is a big part of the process. Charities often must turn down big gifts from estates because as foreign charities they aren't prepared, in terms of U.S. law, to accept them. If that's the case, a donor could instead structure the gift to benefit the same class of persons: If you want to give to a homeless shelter in Chile but can't, perhaps a U.S. foundation that works in Chile can direct the gift to that end.

Increasingly, charities in the United States offer complex, tax-oriented programs to provide big givers every opportunity to maximize tax relief and the size of their gift. For instance, consider a gift of, say, $1 million. Instead of giving the money outright as cash, the charity can take securities and pay out the earnings to a surviving children during their lifetimes. Once the children die, the portfolio reverts to the charity. The donor gets an immediate tax break under U.S. law, although partial, yet the money remains useful to his or her family for a long period after death.

Similarly, a charity can accept a portfolio and pay the donor back an annuity during his remaining years, then keep the balance upon death. Also, donors can leave their portfolios behind as a fund, the earnings from which are directed by charities to a given cause. Family foundations, too, are increasingly easy to set up under U.S. law, allowing even small estates the kind of perpetual giving, and tax advantages, once reserved for billionaires.

Better yet, find a way to begin giving early, says Darin Zenov, an attorney and partner at Steel Hector & Davis in Miami who specializes in domestic and international estate planning. Charitable gifts are deductible against current income and can be carried forward over subsequent tax years. Giving early means less is subject to estate taxes. "Historically it's better in the United States it's better to give to charities in your lifetime than at death," Zenov says.