The Gift of Giving


Tax Efficient Ways to Create a Legacy Plan

Legacy planning can be a beautiful way to provide for your family and give to the charities and causes that you feel strongly about. There are strategies that are very simple and of course strategies that can be a bit complex. The important thing is after you are no longer with us, that your estate is passed along to your heirs and charities as tax-efficient as possible to the best of your wishes. This article will discuss a few strategies that individuals are using in their estate planning to provide for their heirs and create a legacy with their wealth.

Retirement accounts — Giving your retirement accounts to a charity upon your passing, is simple and a great asset to donate to a nonprofit organization. You make the charity the beneficiary of your retirement account. The charity is exempt from both income and estate taxes, and the charity can receive the total account value after liquidation. You can leave your properties and non-retirement assets to your heirs, which will receive step-up cost basis based on the date you pass away. This is a simple and tax efficient way to provide for your heirs and give to your favorite charities without the hassle of creating a trust.

Charitable Trust — Charitable trust are created for individuals who would like to donate assets to a charity but retain an income stream or benefits of holding on to the asset. The trust is typically opened in the charities name while the donor receives a charitable income tax deduction at the time of the transfer. The transfer reduces the value of the donor’s taxable estate and helps them avoid capital gains on the asset that were transferred to the trust.

Types of Charitable Trust —

Charitable Remainder Trust (CRT): A CRT provides either a fixed payment or a fixed percentage to the donor each year. The trust must make payments annually and is considered an irrevocable trust. The payments can be for the life of the donor or a set period. At the end of the period or the donor’s death, the remainder of the trust is owned by the charity. If your primary goal in setting up a CRT is to maximize the payments during your lifetime, consider whether the trust assets have the potential to appreciate. If they do, you’re better off receiving a percentage of the trust’s value every year. If you believe the assets will decline in value, you’re better off receiving a fixed payment.

Charitable lead trust (CLT): A CLT is the opposite of a CRT. It provides income to a charity for a set period, after which the remainder passes to the donor’s heirs. This trust is for individuals who don’t need the lifetime income from the asset. A fair market value of the property is determined, and the trust is structured to get an income tax deduction on the value. The remainder interest is valued at zero which eliminates a taxable gift. Like a CRT, a CLT is irrevocable, so consider both options carefully before implementing.

Pooled income fund (PIF): A PIF is a trust maintained by a qualified nonprofit organization. Donors contribute to the fund, which is set up like a CRT with the charity acting as the administrator. The donor receives income during their lifetime. After the donor passes away, the remainder of the funds goes to the charity. Contributions to a PIF qualify for charitable income, gift, and estate tax deductions. Individuals typically use a PIF to avoid the legal expense of creating an individual trust.

Donor Advised Fund: A donor-advised fund is a simple, tax-efficient way to give during your lifetime and after you pass on. This account can be opened at a donor-advised fund account sponsor with a tax-deductible contribution, and then you can make grants to any public charity over time. Many types of assets can be contributed to these accounts, including appreciated securities, required minimum distributions, real estate and cash that are tax-deductible. You can realize tax deductions each time you fund the account and by donating appreciated securities or property you can avoid paying capital gains at a later date for those assets. The donor-advised fund account sponsor handles the administrative details. Additionally, donor-advised funds can support legacy and estate planning you can name the fund as the beneficiary of a will, retirement account or trust, thus helping to reduce your taxable estate. To continue your legacy of giving, you can name individuals, including your children, as successors on your account. You can also name several charities as beneficiaries. If you have a more substantial estate and want one or more charities to benefit for many years after your death, you may want to consider a charitable legacy program offered by some donor-advised funds. These programs allow you to spread out the grants, extending your philanthropic legacy and helping charities make better use of the gifts over time.

Be sure to share your legacy plan with your heirs and include them in the process. Open lines of communication as to what your wishes are before you depart from this world will provide clarity and understanding to your heirs. If you would like to give to a charity make sure they understand your reasoning. Your heirs will have a better understanding of your intentions and will likely admire your willingness to give and may want to carry on the legacy. Giving is something that we do because it brings joy. “I have found that among its other benefits, giving liberates the soul of the giver.” ~Maya Angelou.

Rodney A. Cook CFP is the director of financial planning at Rosell Wealth Management in Bend.
Investment advisory services offered through ValMark Advisers, Inc. an SEC Registered Investment Advisor
Securities offered through ValMark Securities, Inc. Member FINRA, SIPC 130 Springside Drive, Ste 300 Akron, Ohio 44333-2431. 800-765-5201. Rosell Wealth Management is a separate entity from ValMark Securities, Inc. and ValMark Advisers, Inc.


About Author

Rodney A Cook CFP Rosell Wealth Management

Rodney A. Cook CFP is the director of financial planning at Rosell Wealth Management in Bend.

Leave A Reply