“It is up to us to live up to the legacy that was left for us, and to leave a legacy that is worthy of our children and of future generations.” – Christine Gregoire, former Washington state Governor. (1947 - )
By Julia Anderson
Leaving a legacy. It may conjure images of wealthy people donating big bucks to build a new cancer wing at the hospital or fund construction of a homeless shelter.
Headline-producing check writing is part of the American way. Bill and Melinda Gates are giving away billions. So are Warren Buffett and Mark Zuckerberg. For the wealthy, charitable giving is about do-gooder big heartedness and also part of a long-term estate-planning and tax strategy.
News Flash: Charitable giving is not just for the rich. You, too, can leave a legacy.
The simplest way to be remembered is to put instructions in your will to provide an inheritance for your heirs or to fund a favorite charity after you die. Writing a will is a generous gift to your heirs...no fighting over money or property.
But if you want to do good works before you fall off the tree branch, consider a donor-advised charitable fund.
What is a DAF? These funds, offered by brokerage firms, banks and other entities, allow donors to make a charitable contribution, receive an immediate tax benefit and then recommend grants from the fund over time. In other words, you can put money inside your DAF but still control the money, let it earn more tax-free until you decide when and how to hand it out.
Tax reform legislation passed by Congress in late 2017 has reduced the tax incentive for charitable giving by raising the standard federal income tax deduction to $12,000 for singles and $24,000 for couples. Those 65 and over can claim a $25,300 standard deduction.
Before these tax law changes, charitable contributions were part of the itemized deductions many of us used to lower our gross taxable income, along with other deductions such as mortgage payments and state and local taxes. With the increased standard deduction, fewer of us will bother to add it all up to get a deduction.
Why would a donor-advised charitable fund still make sense?
You can accumulate money inside a donor-advised fund and let it grow tax-free.
You decide when and how much money to donate to your favorite qualified charities. There could still be tax benefits if you “bunch” your planned giving into a single year instead of spreading it over several years. The greater single amount could then be higher than the standard deduction in that year.
You get privacy with a donor-advised fund if you choose to anonymously have your fund manager send out your donations.
DAF managers typically offer you a menu of managed mutual funds where you can invest your money until it is distributed. These funds should match your risk tolerance and investment goals.
Checking out recipients: Fund managers will automatically vet potential recipients as IRS qualified public charities.
The idea is to make charitable giving effective and simple. Contributions can be made when they most benefit the donor while disbursements can occur on a separate timetable – next year, in five years or later.
What to watch out for
According to an IRS warning, there are organizations that promote themselves as donor-advised fund managers but who are fraudulent. They are abusing the basic concepts underlying donor-advised funds by encouraging “questionable charitable deductions,” the IRS said.
They also may offer illegal economic benefits to donors and their families (including tax-sheltered investment income for the donors) and management fees for promoters. This false shelters can get you jail time.
If these violations are caught by the IRS, donors will have the charitable tax deduction disallowed and face fines and penalties.
Make sure you are dealing with a reputable fund manager with a long and well-documented track record.
Leaving a legacy is important to many of us. There are many ways to do it.
Certainly, how we are remembered by those whose lives we touched is part of that legacy. You can give away assets by gifting your investments, retirement savings and real estate holdings to your heirs in a well-crafted will. Or you can assign them to a trust for a bank or other trust management service to supervise.
If you want to give something back before you die, consider a donor-advised charitable fund. You don’t have to be rich. Or you can live a life of service, love your neighbor and be generous and forgiving.
“Leaving a Legacy instead of a Mess,” by Suren Adams
5 Ways to Leave a Great Legacy by Joan Moran at HuffPost
4 Ways to Leave a Legacy by Bart Astor at Forbes.
“This is how you leave a legacy,” by Jim Rohn at Success.com.
I meet women all the time who face job and money transitions and who want to do them right. It’s about building confidence and taking charge of the future. This is your money. No one cares more than you do!
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