Legacy planning is a more comprehensive form of estate planning. When you carefully craft your legacy, you shape the way that you will be remembered after you are gone.
Generosity is one of the most highly respected human qualities. If you are in a position to do so, you may want to consider acts of charitable giving when you are establishing your legacy plan.
There are personal rewards that transcend dollars and cents, but you can potentially gain some tax advantages as a bonus.
Donor Advised Funds
Donor advised funds are very widely utilized by people that value efficient giving. You make a single contribution into the fund, and you provide recommendations with regard to the nonprofits you want to support.
Since many people are using the fund, they share the operating costs, and you streamline your accounting. Plus, you get a tax deduction for the year during which the contribution is made, even if the fund did not make any donations in that calendar year.
Family foundations like the Bill and Melinda Gates Foundation, the Robert Wood Johnson Foundation, and the Ford Foundation carry the names of billionaires. For this reason, you may assume that you have to be in the financial stratosphere to establish a foundation.
In fact, there are about 44,000 foundations in the United States, and most of them are funded with less than $1 million. This can be an appealing option for some people that would like to set aside resources for worthy causes and institutions.
Another charitable giving vehicle is the charitable trust. A charitable lead trust can be a very good choice if you are exposed to the unified federal estate and gift tax. This tax is applicable and transfers that exceed $12.06 million.
If you establish a charitable lead trust, you stipulate a period of time during which annual distributions will be made to a charity that you have named as the beneficiary. You designate a successor beneficiary that would assume ownership of anything that remains in the trust after the term expires.
Since a taxable gift may be given to the successor, the IRS adds an estimate of the interest that will be earned by the assets during the trust term. They use the Section 7520 rate, which is often called the hurdle rate.
The idea is to zero out the charitable lead trust, so you arrange for the charity to receive the entirety of the taxable value of the trust. If the assets outperform the hurdle rate, the beneficiary would assume ownership of the remainder and further federal transfer taxes would not be applicable.
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If you are ready to work with a Burbank, CA estate planning attorney to put a custom crafted legacy plan in place, we are here to help. You can set up an appointment right now if you give us a call at 818-937-2335.
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