If you are facing the issue of finishing your life with too much money, you probably know there are only three groups that will lay their hand on your surplus: the government, your family, and your preferred charities. Most folks will agree that it is best to leave the least legally allowed to the government, but then what to do about dividing your assets between the other two?
A recent article in The Houston Chronicle, “Dying with a surplus: Thoughts on donor-advised funds and estate planning,” suggests charitable donations and a tax-efficient, low-cost way to do it.
Those facing a wealth surplus worry about passing on their assets only after their deaths, rather than while they're alive, and they worry about the potential negative effects of inherited wealth on their children. But these worries conflict with two well-known estate-planning principles. One is the fact that giving away money during your lifetime instead of at your death is the most efficient way to minimize taxes on transferring your wealth. And second, the key to lowering stress in estate planning is to place your personal values in the middle of the plan.
If it's all about your kids, let them have the money. On the other hand, if you have other values you want to express in addition, you should consider donor-advised funds. DAFs offer some advantages in a simpler and inexpensive way for those whose estate won’t need complex intergenerational wealth planning.
Most major brokerages and investment firms offer DAFs, which can be an economical way to accomplish an expression of your values in your lifetime and beyond, without a legal structure like a foundation or trust. When you contribute to a DAF:
- You get to enjoy a charitable gift tax benefit in the year of your gift.
- Assets will continue to grow in value, tax free, over time.
- You don't need to designate all of your charitable beneficiaries now because your appointed trustees can designate gifts to charities over time.
- Giving takes just a call to the brokerage firm, which then confirms the recipient charity is legitimate.
What the DAF gives you is time to enjoy giving while you’re still alive. You get to make future decisions and have discussions with your children about your values. You also have the opportunity, during your lifetime, to see the impacts of your gift. You can give your assets to the DAF this year, enjoy the tax advantages of that gift now, and spend the future giving to worthy causes.
Reference: Houston Chronicle (October 1, 2016) “Dying with a surplus: Thoughts on donor-advised funds and estate planning”