What will your legacy be when you’ve left this world?
Perhaps you want to protect and provide for your immediate family and future generations via the distribution of property and wealth. While this a noble plan, it’s also important to consider investing in charitable causes that are meaningful to you. You may be surprised at the impact you can make on organizations you care about, while simultaneously instilling philanthropic values in the younger generations.
Following are some of the many benefits of supporting philanthropic causes throughout your lifetime, as well as including them in your estate planning process:
1. Provides substantial tax benefits
The Internal Revenue Service allows taxpayers to deduct donations up to 50% of their adjusted gross income when those gifts are distributed to public charities or certain private foundations. This is obviously a prime opportunity to lower your taxable income. The deduction can still be as much as 30% with gifts to family or other non-qualifying foundations.
Remember: the tax benefit is still secondary to your desire to aid others, however, since the tax savings you’ll receive will be less than the value of the contribution.
2. Inspires others to give
Donating to charitable causes can also be a great opportunity to teach beneficiaries about the importance of giving to the less fortunate. There’s also a good chance that by sharing your philanthropic objectives with loved ones, you’ll encourage them to become involved in the process. During your lifetime, you could hold family meetings to talk about your plans to give, and encourage family members to help select the charitable organizations that will benefit from your contributions. Together you can also establish a vehicle such as a donor advised fund through which to donate and analyze the effect your donations have made.
By demonstrating your philanthropic values to loved ones during your lifetime, it’s likely they will continue to carry on your causes after your death, as well as pass those values on to younger generations.
3. Creates an opportunity to establish a family foundation
A family foundation is beneficial if you have wealth to pass on, but are in jeopardy of exceeding the $5.434 million gift tax limit (in 2015). During your lifetime, you can place funds in a special type of trust that is viable for a specific number of years. Various assets can be added to the trust, such as stocks, bonds and cash, a portion of which will be periodically distributed to the foundation. In turn, the foundation is required to distribute 5% of it’s value to various charities.
Family foundations are also an excellent way to educate the younger generations about how to properly manage money, as well as give to charities in a smart manner. Family members may be appointed as members or directors, depending on how you choose to structure the foundation. In these roles they can personally see how the money is distributed over the years, visit the charities that will benefit from the foundation, and learn valuable lessons about proper philanthropy.
At the end of the term of your trust, the assets distributed can stay within the foundation. The leftover assets can then be distributed to your beneficiaries and will be free from gift, estate and income taxes.
Bottom line: charitable giving is a valuable way to optimize your assets, while also educating heirs about the importance of giving. By involving beneficiaries in the process during your lifetime, you’ll likely increase the chances they will pass on their knowledge, and continue building your family’s legacy long after you’re gone.
