What is legacy giving?
Legacy giving, also known as gift planning or planned giving, is a donor’s intention to contribute to an organization beyond their lifetime. This may be done as part of a will, estate plan, or simply identifying the organization as a beneficiary of a retirement account. Since the donor’s gift is structured to take effect after death, a legacy gift does not diminish or reduce the donor’s current assets or income available as support during their lifetime.
What are the advantages of legacy giving?
Legacy giving allows donors to make a significant impact on a cause or organization they care about, even after their lifetime. Making a legacy gift can be a meaningful way of ensuring the ongoing strength and viability of the recipient organization and the work it undertakes. It can also provide satisfaction, fulfillment, and peace of mind to donors during their lifetimes as a measurement of their commitment to the shared values, goals, and objectives of the recipient organization.
What are some common examples of the types of legacy giving?
A common form of legacy giving is to make the recipient organization a designated beneficiary of the donor’s retirement plan, including an IRA, 401(k) plan, pension plan, 403(b) plan, 457 plan or retirement annuity. This can usually be accomplished quite simply by obtaining a designation of beneficiary form from the retirement plan sponsor or the donor’s employer and adding the recipient organization as a whole or partial beneficiary of the remaining balance of the donor’s retirement plan at death.
Another common form of legacy giving is a testamentary bequest, where a donor makes a provision in their will to leave money or assets to a recipient organization. A specific bequest can be a fixed dollar amount or specific asset, while a residual bequest can be a percentage of the donor’s entire estate. Depending on the donor’s financial and family circumstances, it may be advisable to consult an attorney or estate planning professional when planning a testamentary bequest. Oftentimes donors have multiple goals in the dispersal of their assets at death; the more diverse the goals and the larger the estate the greater the need for professional guidance on how to structure a testamentary request that meets the donor’s needs.
What are some less common types of legacy giving?
Other ways to provide a legacy gift at death include life insurance, a charitable gift annuity, and a living trust.
Life Insurance Policy. The owner of a life insurance policy, usually the insured life, can designate a recipient organization as a co-beneficiary to receive the policy’s proceeds at death. Beneficiary designations can be structured in a similar manner as testamentary bequests; that is, either as a specific dollar amount or as a specified percentage of the policy’s face value. Policy owners can also transfer ownership of a policy to a recipient organization with the policy’s face value payable to the recipient organization upon the death of the policy owner/donor. The policy owner/donor must continue to pay the policy premium, but payments are tax deductible. Individuals considering life insurance as a vehicle for legacy giving should consult with an estate planning or life insurance professional for specifics about this approach.
Charitable Gift Annuity. A charitable gift annuity is a contract that provides a donor with fixed income payments for life in exchange for the donor’s lump sum payment to a charity. The donor can choose to receive payments from the charity immediately or at a later date. The amount of the payments depends on the donor’s age, the amount of the gift, and the number of beneficiaries (sole or joint annuitants). The donor may be eligible for a tax deduction for a portion of the lump sum payment in the year it is donated based on its present value as calculated by the IRS. In addition, the money returned to the donor/annuitant in equal periodic installments is considered a partially tax-free return of the initial lump sum gift. Payments stop upon the donor/annuitant’s death, and any remaining assets from initial lump sum donation go to the charity for use in support of its mission. More information about this form of legacy giving as specifically offered by the Unitarian Universalist Association (UUA) can be obtained from the UUA at giftplans@uua.org.
Living Trust. A living trust is a legal arrangement established by an individual (the grantor) during their lifetime to protect their assets and direct their distribution after death. Assets must be assigned to a living trust to be covered by its terms. That means they are re-titled to indicate ownership by the trust. Once transferred to the trust, assets can be managed by the individual/grantor as the trustee and used in the same way as before creating the living trust. If/when the individual/grantor can no longer act as trustee, a successor trustee can be named that manages trust assets and distributes them at the death of the individual/grantor. Beneficiaries are designated by the individual/grantor when the living trust is established. The trustee has a fiduciary duty to act in the best interests of the trust’s beneficiaries and transfer the trust’s assets to them after the individual/grantor’s death as outlined in the trust agreement. Legacy gifts can be designated in the trust document that transfer trust assets to recipient organizations the same as with testamentary bequests noted above in FAQ 3. Individuals may prefer a living trust to a will because a living trust bypasses the probate process.
Are there tax advantages for legacy giving?
Generally speaking, there is a limited estate tax benefit for legacy gifts of wealthy donors. In the case of wealthy donors with total assets (gross estates) greater than $14 million, a legacy gift to a charitable organization (such as UUCF) would be allowed as a deduction from the value of the gross estate subject to taxation. In addition, Maryland, and the District of Columbia impose a limited inheritance tax on property passing at death that likewise could be reduced by a charitable legacy gift. But each jurisdiction has generous exemptions for property passing at death, either by numeric value or class of recipient (spouse, direct heir, etc.) that greatly limit the practical application of the tax. Virginia has no inheritance tax.
Will a legacy gift reduce money I may need during my lifetime for living expenses or other needs?
Since most forms of legacy giving do not transfer the donor’s property or trigger an obligation to pay until the donor’s death, property or assets comprising legacy gifts remain in the possession or control of the donor for use during the owner’s lifetime. Only upon the donor’s death does the legacy gift take effect and pass to recipient organizations. There is a partial, limited exception to this rule in the case of a charitable gift annuity. The amount of a donor’s immediate lump sum transfer to a charitable organization is a permanent transfer of the lump sum amount. However, the donor’s receipt of periodic lifetime payments in return for the lump sum transfer is a partial return of the lump sum amount to the donor.
Can legacy gifts be structured to allow me to donate to a recipient organization while still passing property to my surviving loved ones (spouse, children, siblings, etc.) at death?
Yes. There are many tools that can be employed by legal and estate planning professionals to help balance competing desires for the distribution of property at death. These tools will depend on the facts and circumstances of the donor’s financial status and donative intent. For example, percentages can be used that distribute account or estate balances at death that accommodate multiple beneficiaries. In addition, specific assets (stock, bonds, real estate, etc.) can be identified as passing to a recipient organization that reflect a donor’s intent to support the organization while allowing other assets to pass to surviving loved ones. Finally, contingencies can be used to establish different amounts of a legacy gift based on specified circumstances at death (spouse survive vs. spouse predecease). The more complex the donor’s competing desires and financial circumstances, the more important to consult with legal and estate planning professionals for guidance on structuring a legacy gift.