During His ministry, Jesus consistently emphasized the importance of charity toward others. In fact, the night before He died, Jesus did two important things — He gave us the Eucharist and washed the feet of His disciples. In the washing of feet, Jesus emphasized the importance of serving others. Hopefully, this is an important value in our lives.
How do we effectively pass our values to future generations? There is a tool that can assist us in establishing a legacy of giving for our children and grandchildren. The tool is a donor-advised fund. This strategy operates similarly to a private foundation in the support of important charitable works in the future. It provides the benefits of a private foundation — however, it has a significantly lower administrative cost. Through a donor-advised fund, you may continue to support your favorite charitable organizations. You can easily establish your own donor-advised fund utilizing a host organization such as the Catholic Foundation of Northeast Kansas.
The newly established donor-advised fund usually incorporates the name of the donor in the title of the fund. This strategy is funded through a tax-deductible donation to the host organization. Once established, the grantor(s) and/or their families make periodic recommendations as to which charities should receive gifts.
A donor-advised fund can be an important tool in establishing a legacy for an individual. This strategy allows you to designate your children or grandchildren to recommend which charitable organizations should receive ongoing support. The process of designating which charities for future support can be a formative activity promoting a sense of giving to the values of the future generation.
The following are examples of how donor-advised funds have been utilized by individuals establishing their own legacies. The first is a couple that incorporated the establishment of a donor-advised fund into their estate planning. After the death of both individuals, the donor-advised fund will be established in their memory. The plan is to have the grandchildren annually nominate charities to receive annual gifts. The strategy identifies the grandchildren rather than the children because of the intent to promote the concept of giving into the character of the grandchildren. The role of the immediate children is to serve as teachers and/or advisors for the grandchildren to help instill a sense of giving. The intent is to annually have an event in which the family celebrates the lives of the donors and nominates charities to receive the annual gift.
A second example involved the establishment of a donor-advised fund following the death of an individual. His spouse and children funded a donor-advised fund in his honor. Every year, his spouse and children identify approximately 10 charitable organizations to receive an annual gift from the fund. During the Christmas season, the family reviews the various requests and determines which charities should receive a gift for that particular year.
A third example is an individual who sold his business. The business accumulated significant value over the years. As a result of the sale, there was a large capital gain resulting in a huge tax liability. In order to lessen the tax liability, a portion of the sale was used to establish a donor-advised fund. This provided two important tax benefits. First, a portion of the capital gains was shielded from taxation. In addition, the entire amount directed to the donor-advised fund became a charitable deduction. This reduced the taxation on the sale of the business. The individual considered those organizations which they have been supporting. For example, he had made regular donations to their church of $100 per week, or $5,200 per year. Mentally he combined the support that he would make to his church over the next 10 years which would be approximately $50,000. This amount funded the donor-advised fund. This simple act allowed him to receive a $50,000 tax deduction to lessen the tax liability from the sale of his business.
In all three examples, the family was able to support charitable organizations. In addition, the act of nominating various organizations on an annual basis provided a formative sense of giving for the children and grandchildren of the individuals giving the original gift. It becomes an excellent way to pass a positive legacy to future generations.
There are many sponsoring organizations that can be used to establish your donor-advised fund such as the Catholic Foundation of Northeast Kansas (CFNEK) or the American Endowment Foundation. CFNEK has policies that give preference to charities affiliated with the Catholic Church. In contrast, American Endowment Foundation provides greater flexibility and allows an opportunity for your financial advisor to have greater involvement.
Those individuals wanting to learn more about this strategy make contact the Corpus Christi office, which will provide more information.