As a facet of the expansion of civil society, charitable and philanthropic activity among voluntary associations and rich benefactors became a widespread cultural practice. As activist and scholar, Lisa Duran points out in the Grassroots Fundraising Journal, “Definitions of philanthropy have been dominated by the view that emphasized ‘charity,’ the detachment of professionalism, the benefits of tax deduction, and giving through charitable institutions.” There are two sides to your philanthropy: the giving you do throughout your lifetime, and your plan for what happens at death.
Creating a giving and legacy plan and being proactive with it may not only change your life, it might change the world. For example, AJWS, the human rights organization says, “The act of giving money is a powerful way to participate in changing in the world. Your money can contribute to saving lives and make an impact on serious problems in our world today. Giving money is also an important expression of your values and an opportunity to put your values into action. Being intentional about where you give and how much money you give away each year will help you maximize an opportunity to create change in the world in a way that aligns with your values.”
One valuable resource in helping put this concept of “giving” into practice can be gleaned from the newest edition of Tracy Gary‘s classic book, ‘Inspired Philanthropy: Your Step-by-Step Guide to Creating a Giving Plan and Leaving a Legacy‘ which shows how anyone can align and integrate values, passions, and dreams for their communities and families into their plans. ‘Inspired Philanthropy’ explains how to make a difference by creating giving and legacy plans, tells what questions to ask nonprofits, and spells out how to help partner with advisors and nonprofit leaders for inspired outcomes. Additionally, the new edition includes a discussion of the implications of the Buffett gift to the Gates Foundation; new legacy planning tools; expanded resources on youth, giving circles, and communities of color; key questions for advisors and donors; and worksheets and resources available on the enclosed CD.
Building a Legacy
Whether the goal is to foster a family giving tradition or to continue supporting charities beyond one’s lifetime, donors have options to carry on their charitable legacy and maximize income and estate tax advantages. BB&T addresses eight ways you can protect your heirs, preserve your estate, and still support the values you believe in.
1. Add a bequest to your will. You can deduct cash or property contributions (at fair market value) made to qualified organizations, including:
- Community chests, corporations, trusts, funds or foundations operated solely for charitable religious, scientific, literary, educational, or cruelty prevention purposes or to promote amateur sports competition
- War veterans organizations
- Domestic fraternal societies
- Some nonprofit cemetery companies
- The US government or any state, district or US possession used solely for public purposes. (For information on charities outside the US, visit http://www.irs.gov/publications/p526.)
2. Create a family or private foundation. Foundations may bring you substantial federal tax benefits. Family foundations are operated by a bank, founder, family members or hired staff, which holds, manages and distributes gifted assets. Your foundation can distribute 5% or more of its funds through grants set up with an endowment that upholds the values you believe are important.
While foundations are very complex, your legacy can exist without end and provide a learning experience for your family. As the donor, you maintain a high level of control and administrative engagement during your lifetime. However, you must adhere to a number strict government rules. Working with a skilled advisor is a must.
3. Set up a donor-advised fund within a community foundation. These are easy to start, have fewer administrative costs from staffing and legal fees, and still give you some control over distribution. And they provide opportunities for family learning by actively providing college scholarships and grants to a variety of nonprofit organizations within your own city, state or region.
A community foundation is a collection of endowed funds established by several donors. They offer great flexibility in the charities they support, the types of donations accepted (including real estate, stock and art), and can be funded in several ways from bequests to deferred gifts. That flexibility extends to your involvement as well. You can work with the foundation to make grant and distribution decisions or have it manage this process for you.
4. Consider a trust or life-income gift. Trusts are deferred gifts and a good option if you have unique tax and estate issues and want to (1) give assets now for use later and (2) receive a direct financial return from your giving.
A Charitable Remainder Trust (CRT) lets you transfer assets to a charity in exchange for a regular payout, typically 5% of the trust’s value.
5. Start a Charitable Lead Trust (CLT). A CLT is a good solution for wealthy families who are looking for tax reduction strategies and want to provide for and protect heirs who don’t need the income now. CLTs provide annual distributions (called lead interest) to one or more charities and can be funded during the donor’s lifetime or at death. A CLT offers flexible annual annuity payouts for a fixed number of years or over the lifetime of non-charity beneficiaries. All assets return to the donor or heirs at the end of the allotted term.
6. Designate a charity as your life insurance beneficiary. This is a simple means of providing a charity with death benefit proceeds while reducing your estate. You can donate anonymously and your asset transfer is incontestable by your heirs. You can also revoke your gift if your financial situation changes. The charity can continue to pay the policy premiums if you decide not to.
7. Add a charitable giving rider to your life insurance policy. This is a good solution for high net worth families with policies having a face value exceeding $1 million. The rider pays 1% to 2% of the policy’s face value to your designated charity. A rider carries no additional premiums or administration fees for you, and there’s no decrease in your death benefit. Check with your insurance agent as maximum allowable gift amounts may apply, and some charities do not accept life insurance donations (especially term).
8. Donate a sizable life insurance policy. This approach can greatly reduce a taxable estate and is an excellent way to dispose of a policy you no longer need. You might also get a current income tax deduction at fair market value. Your charity or nonprofit receives the face amount of the policy upon your death and a much larger donation than provided by a charitable giving rider. There’s no limit on the size of the policy you can donate, and your cost is minimal.