The financial planning process is unique for every individual, though there are some common themes that reappear within certain demographics. This is particularly true when it comes to estate and charitable planning for Orthodox Jewish families.
By way of background, Orthodox Judaism advocates a strict observance of “halacha” or Jewish law. Key practices include observing the Sabbath from Friday night to Saturday night and eating kosher food. In the Orthodox community, money plays an important part in ensuring that families can maintain their religious and cultural lifestyle as well as pass on traditions to the next generation.
It’s important for advisors to be mindful of some of the financial planning nuances when working with Orthodox Jewish clients. Below are some considerations for the charitable giving and estate planning realms of which advisors should be aware when working with this demographic.
Charitable giving is a top priority for many Orthodox Jewish families. Understanding some of the terminology and guidelines is essential for proper philanthropic planning.
Tzedakah and maser: Charity in Hebrew is called “tzedakah,” and many Orthodox Jews try to give “maser,” which means 10%. The question is “10% of what exactly?” There are a variety of opinions on this point alone, and it’s worth advising your client to speak to their religious authority, if appropriate.
However, one way of thinking about it that clients give 10% of their net income after taxes. This amount isn’t net of expenses or retirement account contributions, but it’s up for debate whether it’s net of the cost of Jewish education.
Develop a framework for giving: All investors, regardless of creed, should have a strategy for managing their money. They all should also have a disciplined framework for how they want to give it away.
There are many rules according to Jewish law regarding giving charity, and many books have been written on the subject. However, an extremely general framework for how to prioritize giving to charity is:
- Give to your family in need.
- Give locally to causes in your community.
- Give to charitable causes in Israel.
- Give to any other causes that are important to you.
Naturally, every individual has their own passions. Those should be considered and will likely take precedence over this methodology. For a family who’s unsure how to give, this framework can be instructive and a good starting point.
Creative charitable solutions for Jewish clients: Advisors have developed many creative ways for their clients to give to charity. This includes using donor-advised funds to bunch contributions, charitable remainder trusts to efficiently remove assets from the client’s estate, qualified charitable distributions from an IRA to minimize the client’s tax liability and charitable gift annuities to ensure a stream of income while benefiting charity. It’s important to note that all these strategies may be used within the context of planning for Orthodox Jewish clients.
Judaism has very specific guidelines on how an estate should be distributed through a will. The tiers of inheritance, in order of their priority, are:
- Son and the son’s male descendants inherit an individual’s estate.
- If there are no male heirs, a daughter can inherit the estate.
- If someone has no descendants at all, then their father and brothers can inherit.
- A husband inherits his wife’s estate, but not vice versa.
- A male firstborn is entitled to a double portion.
- A widow is entitled to have her needs and living facilities provided for from her husband’s estate for the rest of her life or until she’s remarried.
- Unmarried daughters are entitled to support and maintenance from their father’s estate.
While these laws were likely followed faithfully years ago, as times have evolved, it isn’t surprising that every client I’ve worked with has been dissatisfied with this framework. Thankfully, there are simple solutions within Jewish law that allow families to distribute assets in a way that more accurately reflects their desires.
Shtar Chatzi Zachor: A “Shtar Chatzi Zachor” is a Jewish will, drafted in accordance with Jewish law, which creates a means of circumventing the Biblical inheritance requirements without violating them.
The Shtar Chatzi Zachor serves as a supplement to a secular will. It works technically by having the testator record that a debt was made to an heir that takes effect an hour before death. A stipulation is made that this debt is waived if the heir follows the rules of the secular will. The testator assumes a debt much greater than the expected size of the estate so that the heirs are motivated to honor the terms of the will for the debt to be waived. This debt is created by the testator accepting symbolic consideration.
For example, if a son is expecting to receive the entire estate and leave his sister with nothing, he will be faced with a debt burden that’s much larger than his actual inheritance. This will motivate him to relinquish his rights under Jewish law, and everyone will inherit according to the secular will. This is the type of situation in which the client should seek out rabbinic guidance to make sure they’re executing this document correctly.
Boilerplate versions of this document can be found online.
Leave assets outside of client’s will: Many violations of Jewish inheritance law typically stem from leaving assets through only a civil will. However, there are a myriad of standard estate-planning strategies to leave funds outside of the client’s will that help solve this issue.
These strategies include making lifetime gifts, using irrevocable trusts, leaving life insurance and retirement monies via beneficiary and titling accounts so the assets pass directly to beneficiaries and not as an inheritance. All these approaches allow the client to give money to the intended beneficiaries outside of a will, which helps avoid violating Jewish law and still get a client’s assets to their intended heirs.
Understand the Demographic
It’s imperative that an Orthodox Jewish client’s entire team of trusted advisors, including their estate planning attorney, accountant and financial advisor, are familiar with their lifestyle and customs. The important takeaway isn’t necessarily to be an expert in all the intricacies of Jewish law, that’s the role of the client’s Rabbi. Rather, it’s to be able to identify these unique planning areas. The ultimate objective is to take the time to understand this demographic and put together a strategy to allow them to maintain their lifestyle.
Jonathan I. Shenkman, is president of Shenkman Wealth Management