Real Life Resources

Creating Your Legacy

After a successful career, it’s time to give back. You owe it to yourself — and your heirs — to consider the best way to go about it.

Don’t Just Give It Away

Life gets busy, and sometimes it’s easier just to write a check to your favorite charity. But sophisticated strategies for giving have their upside.

  1. Charitable planning can save on taxes, freeing up more funds for giving.
    It’s possible to cut down on both capital gains and estate taxes.
  2. Planned giving lets you extend your influence far into the future.
    1. Have a say in how your money is used even after you’ve passed on.
    2. Target your assets to achieve goals important to you.
  3. It’s possible to set up future gifts while controlling your money in the here and now.
  4. You don’t have to choose between charitable organizations and your heirs. There are plans allowing everyone to benefit.

Putting Your Generosity to Work: Part 1

There are lots of ways to structure your contributions. Work with your financial advisor to find the best fit.

  1. Cash contribution: Cash contributions are tax-deductible, leaving you with more money for deserving organizations.
    1. Charities should send you a confirmation of receipt of your contribution, but you will need to keep track of the letters or copies of checks.
    2. An unfocused series of gifts may not let you achieve the kind of legacy your generosity merits.
  2. Appreciated Securities: Contributions of appreciated securities are tax-deductible and you will not pay capital gains taxes on the positions transferred, leaving more money for deserving organizations. While this method has its pluses, it still is not a comprehensive plan.
  3. Charitable Gift Funds: Donations to charitable gift funds allow you to contribute appreciated stock or mutual funds.  You will not pay capital gains taxes on the appreciation.
    1. Contributions to the charitable gift fund are tax deductible in the year you donate to the charitable gift fund, not when you make donations from the charitable gift fund. Once funds are in the charitable gift fund, you may choose to distribute to various charities at any time.
  4. Planned giving/Specific bequests in wills or revocable trusts: While there is no income tax deduction for specific bequests, the amount is not includable in your estate for estate tax purposes.

Putting Your Generosity to Work: Part 2

Setting up a trust or foundation is more complex but could be be appropriate depending on your situation. For example:

  1. Charitable Remainder Trusts (CRT) are easy to set up to minimize taxes. They have two beneficiaries, usually the donor and a specified charity.
    1. The income beneficiary (donor) receives an income stream during his/her lifetime.
    2. The remainder beneficiary (charity) gets the principal (tax-exempt!) upon the donor’s death.
    3. Variations on the CRT include an annuity-structured donor payout (CRAT) and one based on market value (CRUT). The downside: CRTs bypass children and other heirs in the wealth transfer process.
  2. Charitable Lead Trusts provide income to a charity during the donor’s lifetime, with the assets turned over to non-charitable beneficiaries upon death.
    1. This method allows the donor’s heirs to inherit.
    2. But the charity collects only for a limited time.
  3. Private foundations: Because of the accounting and administrative complexities and costs, private foundations generally should only be set up for very large estates.

Depending on the desired charitable giving outcome you seek, a combination of plans is often the right way to go.

Hard work and careful planning got you where you are today. The same strategies are the key to enable you to share your good fortune in the way you find most fulfilling.

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Gerstein Fisher
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