“I resolved to stop accumulating and
begin the infinitely more serious and difficult task
of wise distribution.” –Andrew Carnegie
An article posted in Money offers a startling statistic: Approximately 70 percent of wealthy families lose their fortunes by the second generation, and 90 percent lose their wealth by the third! The primary cause being that most people do not teach their offspring about handling money.
If you pass your fortune to your heirs without also passing on the positive values that helped you build that wealth, you could actually be doing your children more harm than good. For this reason, we recommend some form of legacy protection as an integral part of any estate plan.
Charitable planning provides an excellent way to reinforce your values while preserving your family legacy. Although much of your planned giving can be set to trigger automatically, its very presence may instill a sense of personal responsibility in your heirs. When you pass on, they hopefully will pick up that mantle and find their own causes to support. Therefore, in this post and the next, we’ll explore some common creative strategies for implementing planned charitable giving in your estate plan.
Charitable Remainder Trusts (CRT)
A CRT benefits both you and a charity of your choosing. Effectively, you transfer an appreciated asset (for example, stocks) into an irrevocable trust, removing it from your estate. That can reduce both your income and your heir’s estate taxes. If the asset is sold and the funds reinvested, this should enable you to draw an annual income for a term you designate (even for the remainder of your life). At the term’s end, whatever remains in the trust goes to your chosen charity.
CRTs can be structured in many ways to suit your needs. For more insights on CRT strategies, check out this article published by the American Institute of CPAs.
Charitable Lead Trusts (CLT)
While the charitable remainder trust pays you first and the charity second, a charitable lead trust pays the charity first and your family second. Often structured to trigger upon death, the CLT holds certain assets in trust for the charity you designate while also making an annual payment to the charity. After a specified number of years, the CLT gives whatever is left to your beneficiaries.
Although the tax breaks are not as significant with this type of trust, a CLT allows you to extend your giving past your deduction AGI limit, since the assets in the trust don’t count as your property.
Additionally, by paying the charity first, you tangibly demonstrate your values to your heirs. At the same time, you avoid giving your heirs a sudden windfall that might be too tempting to resist: They’ll be forced to budget and plan rather than immediately spend their inheritance.
In the following post, we’ll continue this thread of discussion: How to use estate planning to pass on your family’s character and values–the real priceless heirlooms of your estate. For more information about effective charitable planning strategies, give us a call to schedule an appointment.