Seriously considering the timing and focus of your gifting and legacy for the first time — or perhaps reconsidering it — was among the countless tough questions stimulated by the global coronavirus pandemic. For many, widespread death and uncertainty raised the perennial question: How do I want to be remembered?
The need to be remembered — to identify a lasting legacy — marks a period of life review commonly associated with older adults. But many of us — of any age, with or without children, and financially comfortable if not wealthy — began to examine our life with fresh eyes during an extended period of forced quiet and isolation. A thorough life review is particularly likely if you experienced a devastating loss — of a parent, job, friendship, or relationship important to you.
During the past year, a number of our clients expressed a desire to learn more about their gifting options and the optimal timing for planning their legacy. While each person’s journey is distinctive, as I listen and explore their wishes, I repeatedly hear many of the same questions.
Gifting and Legacy Questions
When is the best time to give?
There are three basic options when you consider when and how to make a gift:
- Give now
- Give over time
- Give after you die
Yes, you can consider a mix of all three, but your reasons for selecting one or the other will guide your thinking about how you make your gift.
Giving now has an immediate impact and lets you help those who may need it most now. During the pandemic, philanthropy increased dramatically — up 80 percent year-over-year according to a survey of 32 community foundations — as Americans responded to the widespread need. The disadvantage of giving now is the risk that your financial situation may unexpectedly change in the future, and you will no longer have the gifted assets — and there may be tax consequences if assets are liquidated to give cash (which they don’t have to be as many charities will accept the asset).
Gifting over time may be used for either family members or charitable organizations. I have seen parents decide to change a future bequest to a phased series of annual gifts for their young adult millennial children — a generation of adults still recovering from the Great Recession, often saddled with student loan debt, and most likely to have been affected by job loss during the pandemic. While gifting over time may offer more flexibility than giving now, where and how your assets are held and gifted becomes an important consideration.
Giving after you die is what many Americans associate with estate planning, legacy, and philanthropy. The American Bar Association offers a helpful glossary of estate planning, but I hear queries about these four terms most often: wills, revocable (or living) trusts, beneficiary, and bequest. Understanding these basic terms will help you think through your gifting options and prepare questions for a meeting with an estate attorney.
What are the simplest and most common gifting options?
Bequests (through a will or trust) and beneficiary designations (for an insurance policy or IRA) are the simplest and most common ways to create a charitable legacy.
Examples of Charitable Bequests and Beneficiary Designations
- Gifts in wills or living trusts
- Charitable beneficiary designations from:
- IRAs and other retirement plans
- Bank and brokerage accounts
- Life insurance and annuities
Integrating Planned Giving
There are many ways to plan for a legacy gift in addition to basic bequests and beneficiary designations. The broad term I use when a client asks about available options is planned giving.
What is planned giving?
- A way of making a charitable gift during your life or death that is part of your overall financial or estate plan
- Involves gifts from your assets rather than cash flow
- Most commonly, a future gift that does not affect your current financial security
- Motivated by a desire to make an enduring impact on a cause you are passionate about
- It becomes a permanent statement of your values
Once you have determined how you want to be remembered, you can explore which planned giving option may be best for you with your financial planner.
A more advanced tool for giving now is to establish a Donor-Advised Fund (DAFs). Donor-Advised Funds are a popular and tax-efficient vehicle for granting cash, securities, and other assets to a charitable organization. For those who have recently sold a business, it’s also an appealing option since DAFs can be used to lower the tax bill from the sale. Contributions to a DAF can be invested, which allows them to compound over time with years of potentially tax-free growth.
For those donating to a DAF, this vehicle offers several possible benefits, from minimizing capital gains taxes when appreciated stock is donated to being able to take an immediate deduction. There may be some disadvantages, such as possible account minimums, strict limits on grant allocations, management fees and the potential that future tax laws may change at any time that may impact the tax treatment and benefits of donor advised funds. No matter what cause you’re supporting, donating through a DAF may be able to give you more bang for your buck.
Qualified Charitable Distributions
Suppose you’re over the age of 70 ½. You also have a unique opportunity to support a charitable organization while minimizing tax consequences by processing a Qualified Charitable Distribution (QCD) from your IRA (up to $100,000 annually).
How it works is, instead of taking receipt of your annual Required Minimum Distribution (RMD) – which can start at age 72 now versus 70 ½ — you can request that the funds be sent directly to a 501(c)3 charity of your choice. No taxes need to be withheld on the distribution. It would be best to let your tax advisor know that the distribution went directly to a charity, therefore avoiding a taxable event.
When is the best time to give?
There is no one right answer to the question of when is the best time to give. Your personal financial situation, your goals, your values, and how you want to be remembered will determine when is the right time for you. Be sure to take the time to explore your options and beware of anyone who advises one solution for everyone. Your decision can, and for many people, most likely will change over the years — but your legacy will be forever.
Philanthropic Solutions in Financial Planning, American Heart Association and Financial Planning Association® certificate program for financial advisors.
How to Say It to Seniors: Closing the Communication Gap with Our Elders, by geriatric psychology expert David Solie
Donor-Advised Fund Grantmaking Continues Its Surge During Covid-19, Community Foundation Public Awareness Initiative
Glossary of Estate Planning Terms, American Bar Association
Christina Ubl, CFP® of Clute Wealth Management in South Burlington, VT and Plattsburgh, NY, an independent firm that provides strategic financial and investment planning for individuals and small businesses in the Champlain Valley region of New York and Vermont. Christina is a member of the inaugural group to successfully complete the American Heart Association and Financial Planning Association® certificate program, Philanthropic Solutions in Financial Planning. Clute Wealth Management and LPL Financial do not provide tax and/or legal advice or services. Please consult your tax and/or legal advisor regarding your specific situation. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.