Combining estate plans and lifetime financial plans can be challenging, especially for individuals who have dedicated a significant portion of their estate to charity, for example 50% or more. Wills are often drafted independently of lifetime financial plans. The drafting lawyer may not ask the question “is it prudent and advantageous to start giving major gift during life?”. In certain situations, there are significant tax and philanthropic benefits to start estate donations during life.
A donor advised fund is a helpful planning structure to coordinate lifetime and estate giving. At Aqueduct Foundation, when donors make multiple gifts to achieve their ultimate philanthropic goal we call it a “combination gift plan”.
Donors often start by their articulating their philanthropic goals when they are revising their will and establishing a legacy fund. A legacy fund requires no current donations — only a clause in the will to ensure it receives future funding. The legacy fund may lie dormant for years, but it can be activated at any time with lifetime gifts as the donor’s circumstances and philanthropic goals change. The estate planning process provides donors with the clarity they require to start making gifts to “their foundation” during life.
There are a few reasons for “combination gift plans”:
- Individuals who are donating the majority of their estate to charity may not have enough income in the final two lifetime returns or three estate returns to claim a gift by will, which results in lost tax benefits. After a careful review of the donor’s financial situation, it may be possible to start making gifts during life to salvage the lost tax credits. A gift of appreciated public securities, for example, will also eliminate the capital gains tax. The lifetime gifts are a pre-payment against the ultimate gift plan and significantly reduce lifetime taxation.
- For many donors, the thought of significant gifts during life prompts concerns about loss of privacy and control. However, making a gift to one’s own “fund” can be done in confidence. The donor has complete discretion to decide on the charities to be supported, how much they will receive, and when the gifts will be made.
- Starting strategic giving during life is a goal of many donors. The donor advised fund provides a safe, flexible structure to get started. The host foundation can help with mission development and charity research. At Aqueduct Foundation, we find that the grants made during life a track record to guide granting after death.
Combination gift plans provide a practical way to plan personally significant philanthropy and maximize tax savings in a prudent fashion.