Leave a Legacy through Planned GivingSubmitted by David Vaughan Investments, LLC on August 31st, 2017
by Stephanie A. Ricketts, CFP®
Planned giving is the process of making a charitable gift (during a donor’s life or at death) that both enhances philanthropy and enables a donor to address financial and estate planning issues. It usually serves a dual purpose of supporting worthy causes and at the same time allowing individuals to address their own specific financial, tax and estate planning needs. Often times estate planning discussions are about death and the avoidance of a resulting death tax but fundamentally the purpose of estate planning is to leave a legacy for the living.
Planned gifts make use of legal and tax strategies and / or utilize specific financial products that require donors to turn to professionals for assistance. In contrast, a simple charitable donation made from an individual’s cash flow is not defined as a planned gift. Additional characteristics of planned giving that differentiate these gifts from an outright charitable donation are as follows:
Control: Giving to an annual campaign or attending an event is important and occurs frequently in charitable fundraising endeavors, but perhaps these dollars are not going exactly where you would choose for them to go. With a planned gift you can specify in precise detail where every last penny is to be spent.
Longevity: Planned giving allows a donor to continue to be a philanthropic force of support to aid communities and causes that one cares about even after their death. Some planned giving account structures even allow for the assets to be administered and allocated to charities by family members for generations to come.
Element of Surprise: Many donors make their planned gifts a surprise. Donors do not need to inform an organization that they are planning to make a donation, but it may help the organization plan their budget (in the event a set timeframe and amount for the gift is known). Depending upon how the gift is structured, however, it may be impossible to notify the charity of the timeframe or the gift amount(s).
Planned gifts can take a number of forms and it is important to note that they are not all distributed in the same manner. Some planned gift types include the following:
Charitable Remainder Trust: A type of trust that provides an income stream for individuals, and at the death of the donor, a charity receives what is left in the trust.
Charitable Lead Trust: Opposite of the remainder trust in that it is a trust account that produces an income stream for the charity, and at the death of the donor the donor’s heirs receive what remains in the trust.
Foundation: A wholly distinct, tax-exempt legal entity that is governed by its own set of by-laws, board of directors or trustees and articles of incorporation. A foundation can be opened and funded either pre- or post-death.
Donor Advised Fund: A charitable giving account that is maintained and operated by a section 501(c)(3) organization, which is also known as a sponsoring organization.
Charitable Bequest: An official statement in a will or trust that designates a specific dollar amount, percentage or remainder amount to charity. Sometimes donors will name a charitable organization as the beneficiary of a life insurance policy.
To successfully lay a foundation for a solid legacy plan, it is important to take your time, consult with the appropriate professionals and consider the various options so that the final charitable gifting strategy matches your personal interests and financial circumstances.