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Creating a Legacy

Partners' Network Blog

Creating a Legacy

Recently, a client asked about establishing a private foundation for periodic donations to charities for specific purposes after her death.  My first reaction was to answer her question along with explaining other alternatives.  On second thought I responded with a very easy, low-cost plan that I am sharing with you today.

Before I start, let me state that there are many ways to give charity – before and after death.  Based upon individual circumstances, what might work perfectly for one client might not be effective for another.  I am not explaining every way to handle charity-giving, but my partner, Raymond Russolillo, does this regularly in his charity blogs that I highly recommend at https://charitable-nation.com/

My suggested method involves using a donor advised fund that I explained in a blog on Aug 14, 2014.

Here are the steps:

  • Open a donor advised fund (DAF) with the minimum required amount.  Based upon where it is opened, this would be about $5,000 to $10,000.  In some instances, the DAF can be opened after your death, but I suggest opening it while you are able
  • If possible, use appreciated long-term stocks and you will get a current tax deduction (subject to how you file) for the full value of the shares and not be taxed on the gain; or you can fund the DAF with cash
  • The money in the DAF can sit there and be invested in a bundled investment fund
  • The DAF can be used during lifetime, but in this situation, that is not the purpose the client wants to accomplish
  • The DAF can be in your name or in the name of the person you want to honor with the future charitable gifts
  • Your will or trust agreement will provide for a charitable bequest to be made to the DAF
  • If you want, you can designate the DAF as the beneficiary of your IRA or retirement plan
  • You would select people that are authorized to make the suggestions for the distribution of the funds.  This would include you initially and those you will trust to follow your wishes and instructions after your death.  Note that any entity you establish will need a trustee or someone empowered to act in accordance with the terms of the agreement.  This designation for your DAF is not materially dissimilar to that
  • You would provide your designated person with an instruction letter or can include all instructions in your will or a trust agreement that will become effective or operable upon your death or settlement of your estate
  • Your DAF will remain open as long as there is a successor donor and a balance in the account
  • There is no cost to setting up the DAF
  • The DAF will charge an ongoing management fee that should be offset by some of the earnings on your fund balance
  • No tax returns or any reporting are required and no annual professional fees are payable
  • DAF activity can be handled and tracked online or by postal mail
  • No provision is permitted to be made in the DAF for compensation to the donor adviser.  A suggestion is to permit in your instructions that the donor advisor can make a certain amount of contributions from your fund to their own charities

The above is a simple plan that will work, accomplish what you want, be operable after your death and enable you to leave an extremely low cost legacy.

This advice, like all tax advice, is generic and you should meet with a knowledgeable professional who can completely review the applicability to your situation before taking action.

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