Transfer of Wealth: Following the Money

“The greatest wealth transfer in modern history has begun,” according to a mid-2021 report in the Wall Street Journal. And, with tax reform’s big bite into estate values off the table, at least for now, many of your older clients may be thinking seriously about their legacies.

And these legacies will be significant. As of March 31, 2021, according to data collected by the Federal Reserve, Americans in their 70s and older had a total net worth reaching almost $35 trillion. By 2042, an estimated $70 trillion will change hands, including an estimated $9 trillion flowing to charities, according to research conducted by Cerulli Associates.

As you advise an older client, an important part of the conversation will be to determine the best charitable giving vehicles to achieve your client’s community goals, particularly evaluating the potential role of a donor-advised fund or private foundation. Increasingly, your clients are learning about their options in mainstream media and likely have a greater level of awareness about charitable giving options than ever before, especially in the wake of the recent twists and turns concerning potential tax reform.

Here are key points to keep handy for those conversations (as you pick up the phone to call the Community Foundation team!):

• A donor-advised fund at Community Foundation of the Lowcountry costs nothing to set up, and ongoing fees are minimal.
• A donor-advised fund can be created quickly–within a week or even days. A private foundation, by contrast, requires establishing a legal entity through state and IRS filings.
• Donating hard-to-value assets to a donor-advised fund delivers better tax benefits (deduction of fair market value) than a gift of the same assets to a private foundation (deduction of cost basis).
• A client can deduct a greater portion of AGI (e.g., cash deductible up to 60% of AGI) with a gift to a donor-advised fund than with a gift to a private foundation (e.g., cash deductible up to 30% of AGI).
• Ongoing operations of a donor-advised fund through the Community Foundation are very easy, with no tax filings required.
• Sometimes, both a private foundation and a donor-advised fund are useful tools to meet a client’s charitable giving goals. The team at the Community Foundation team can help you develop a structure for your client that maximizes the benefits of each vehicle within an overall philanthropy strategy.

Next, consider encouraging your clients to make charitable giving part of “living large” in their golden years, especially in light of an emerging trend that some retirees are spending their money instead of giving it away.

Finally, remind your clients that the best time to set up their philanthropic plans really is right now. By being proactive, your client has nothing to lose and everything to gain in ensuring that their charitable wishes are carried out. To that end, the Community Foundation regularly works with advisors helping clients who wish to establish “legacy funds” to receive bequests after the clients pass away. A legacy fund allows a client to describe charitable intentions, including naming advisors and suggesting nonprofits to receive fund distributions, to guide the heirs through the client’s charitable legacy. Your client can name the fund, and even provide that the Community Foundation’s team will work with advisors to make grants and evaluate impact. A legacy fund agreement can be modified anytime before your client’s death.

The team at the Community Foundation is a resource and sounding board as you serve your philanthropic clients. We understand the charitable side of the equation and are happy to serve as a secondary source as you manage the primary relationship with your clients. This newsletter is provided for informational purposes only. It is not intended as legal, accounting or financial planning advice.