Legacy gifts and complex assets can be used in charitable giving to create a lasting impact for donors, heirs and the nonprofits they benefit, according to a recent article from Wealth Management, “Unlocking the Power of Complex Assets and Legacy Gifts in Philanthropy.”
Legacy donations, sometimes referred to as planned giving, involve gifting assets to a charity through trusts, wills, or beneficiary designations. These donations can be made during the donor’s lifetime, upon the donor’s passing, gifted all at once, or in a steady stream. Several trusts specifically allow for making donations, with Charitable Remainder Trusts (CRTs) and Charitable Lead Trusts (CLTs) among the most widely used.
An estate plan incorporating charitable giving should include educating family members about their own role in philanthropy. Creating a tradition of giving and service teaches the importance of compassion and social responsibility as part of the family’s legacy.
Legacy donations are often made through Donor-Advised Funds (DAFs). The estate planning attorney should discuss how donations are made to ensure that they align with the estate plan. Donations can be made annually, based on a percentage of the fund’s year-end balance, or structured according to the donor’s wishes.
Donating illiquid assets may yield greater benefits for a nonprofit than cash gifts. Nevertheless, some charities are reluctant to accept non-cash assets, since they may need to manage the assets and/or liquidate them. The DAF may provide a means of converting assets into cash for charitable giving.
A common gift to nonprofits is real estate property. The nonprofit may not have the money to maintain the property until it is sold, then sell the property. Instead of selling it and paying capital gains taxes (which will reduce the amount of money the charity receives), the donor can gift it to a DAF. The DAF facilitates the transfer, alleviating the nonprofit from the transactional work involved in real estate transactions.
Tax policy has recognized the social benefit of charitable giving for many years, acknowledging that donated assets aren’t income and shouldn’t be taxed. Legacy and complex asset gifts are not taxed as long as they are donated to charities recognized as 501(c)(3) organizations.
There have been some recent attempts to change the tax treatment of gifts, so an estate planning attorney should be consulted to ensure that all charitable giving falls within the current regulations and yields benefits for both donors and charity.
Reference: Wealth Management (Nov. 6, 2024) “Unlocking the Power of Complex Assets and Legacy Gifts in Philanthropy”
