A legacy gift (sometimes called planned gift) is a promise of future funding for a nonprofit organization. When making annual donations, most people look to their disposable income, not wealth. Wealth doesn’t come from a paycheck but rather owning assets that increase in value over time.
Many types of legacy gifts are possible for people at different ages and in different stages of life. Many people begin these legacy gifts during life, others designate the gifts in their wills, and still others plan legacy gifts both during life and at death. Here are just some possibilities:
Bequests
ACT Donor Advised Funds
ACT Future Funds
401(k) Plans
Paid-up Life Insurance
Charitable Trusts
Qualified Charitable Distribution (QCD)
Homes
Small Business Asset
Returns from extra work
85% of legacy gifts are made through a bequest. Betsey and Jon chose to allocate a portion of their estate to their favorite nonprofit organization. A bequest can also be directed to an existing Donor Advised Fund or be used to establish an endowed or non-endowed Future Fund.
Curtis and Tamira want their children to engage in charitable and philanthropic efforts. They want to set an example early on. They both work to achieve this objective, allowing them as a two-earner family to devote a portion of their income each year to a donor advised fund. While still alive, they engage with their children in choosing charities to receive a share of the income earned by the assets in the DAF. After death, each child will be designated as a successor advisor for the monies left within the fund. Their children can continue to support the causes they care about as family.
Cynthia has many nonprofits that she supports year after year. She wants to continue to provide for the nonprofits she cares about after her lifetime. For a small set up fee, Cynthia established an ACT Future Fund with the understanding that when her estate is realized, a portion of her assets will be directed to her fund. She will work with ACT to identify which nonprofits to support, how much the donations will be, and a timeframe for the disbursements. Cynthia can change these directives at any time with a simple communication to ACT Staff. If she desires to support her favorite nonprofits in perpetuity, an endowed Future Fund can also be set up.
Carlos is single and has accumulated $400,000 in his 401(k) plans. So far, he has been able to live off some other pension and Social Security income and is unsure whether he ever will need to spend down those 401(k) assets. He plans to leave whatever is left in his 401(k) plan to several charities. (Note: there are often tax advantages to designating retirement assets to charities, as children and other heirs otherwise would have to pay tax on required withdrawals from those plans.)
David put money into an insurance plan when younger. Now that his children are grown and he and his wife are older and have some retirement assets, he no longer needs that insurance. He donates the paid-up life insurance to a field of interest fund at the community foundation that allocates money to local charities support education and similar opportunities for low-income children.
Alicia has been a successful entrepreneur and feels that she has adequate wealth to give away, but she wants to ensure that she and her husband have a regular income stream for as long as they live. After that, she is happy to leave the remainder of her estate to charity. She also would like to get the benefit of a charitable deduction now. She sets up a trust that allows her to do both.
Monica, who is now in her early 70s, must take a required minimum distribution (RMD) from her individual retirement account (IRA). She doesn’t need the money, so she donates this money through a qualified charitable distribution (QCD) each year to charity. As a bonus, the income donated through the QCD, up to $100,000 each year, is not included in her taxable income. This is even better than a charitable deduction, as she can still take a standard deduction as well. Note: if the money resides in a 401(k) plan, she will need first to roll over money from the 401(k) plan to an IRA.
Mary and John want to deed their residence, or a portion of their residence, to charity now, but they also want to retain the right in the deed to reside there for the rest of their lives. Instead of simply making that gift in their will, they consult with their lawyer, who shows them how to make the commitment now and generate a substantial current income tax charitable deduction even though they will have the use of their home for the rest of their lives.
Tom has decided to retire and sell his small business. He has always been philanthropic but also smart about tax deductions. To avoid a capital gains tax on a portion of his sales, he donates a share of his business to a donor advised fund (DAF) at the community foundation, sells the business, and then over time designates various charities that he would like to receive grants out of the donor advised fund.
Erica believes that life has been good to her and that she has adequate income and wealth on which to retire but feels that her children will need whatever small wealth she might have left in her estate. She decides that she can retire one year later and work an additional year at a job she likes, but then devote the income return from that job to a charity that supports families facing some of the disadvantages that many in her family have faced.
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