Shaping Your Legacy Through Strategic Charitable Giving

If one of your goals is to leave a lasting legacy that reflects your values and makes a difference in the world, you’re not alone. As a nation, Americans are inherently charitable. In fact, charitable giving in the United States reached nearly $485 billion in 2021, according to Giving USA.

With thoughtful planning and execution, charitable giving offers numerous benefits—both tangible and intangible. Aside from the evident advantage of supporting causes you care about deeply, strategic philanthropy can significantly reduce your lifetime tax burden.

Furthermore, giving allows you to leave your mark on this world long after you’ve left it, securing your legacy for generations to come. In this article, we’ll explore a variety of strategies you can leverage to shape your legacy through charitable giving, regardless of your net worth.

If Your Net Worth is Between $500,000 and $1 million: Start with the Basics of Charitable Giving

Leaving a legacy of charitable giving isn’t just for the ultrawealthy. Even those with more modest estates can make a meaningful impact with strategic philanthropy.

Will or Living Trust

According to research from Stanford University, more than 90% of American adults make a charitable donation every year, but less than 6% include a charitable bequest in their will or estate plan. For those who are charitably inclined, this may be a missed opportunity as the impact of leaving a charitable gift can be substantial.

By including a charitable bequest in your will or living trust, you have the unique opportunity to extend your support to the causes you cherish beyond your lifetime. In addition, your bequest can take several forms, providing flexibility in how you choose to distribute your estate.

For example, you can leave a specific dollar amount, a percentage of your estate, or a particular asset to a charity. Alternatively, you can name a charity as a contingent beneficiary that receives a part of your estate only if certain conditions occur (like outliving your other beneficiaries).

Including a charitable bequest in your estate plan involves identifying charities that align with your values, deciding the form of your bequest, and drafting your will or trust to ensure it accurately reflects your intentions. It’s also a good idea to communicate your planned bequest to the charities you choose. That way you can provide details about how you’d like them to use your gift, and they can take steps to plan accordingly.

Retirement Account Beneficiaries

Designating a charitable organization as a beneficiary of your retirement account can be a powerful and tax-savvy way to leave a lasting legacy.

Traditional retirement accounts like IRAs, 401(k)s, and 403(b)s are typically subject to income taxes when your beneficiaries inherit them. However, by designating a charitable organization as your account beneficiary, you can preserve the full value of your account while making a tax-free gift to the causes you support.

This strategy can be particularly beneficial if you have a large retirement account balance and sufficient other assets to fund your retirement. By leaving your traditional retirement accounts to charity and bequeathing assets with more favorable tax treatment to your heirs, you can potentially maximize their inheritance while making a positive impact on society.

If Your Net Worth is Between $1 million and $5 million: Expand Your Charitable Giving Horizons

As your estate grows, so do your options for leaving a legacy of charitable giving. These strategies can provide additional flexibility and tax benefits during your lifetime while making a lasting impact after you’re gone.

Donor-Advised Funds (DAFs)

Donor-advised funds (DAFs) have become an increasingly popular charitable giving vehicle in the United States. According to NP Trust, contributions to DAFs totaled $72.7 billion in 2021, a 47% increase from the previous year.

One reason for their popularity is the flexibility DAFs offer. As a donor, you have control over your investment choices, grant recommendations, and timing of your contributions, all at your own pace. And in addition to cash, DAFs generally accept donations of securities, real estate, and other assets.

One of the ways a DAF can extend your philanthropic influence beyond your lifetime is by naming a successor advisor or advisors. These individuals—often your children or other family members—can continue to recommend grants from your DAF to charitable organizations after your death.

Another option is to establish a “legacy plan” or “succession plan” for your DAF. This plan outlines your wishes for how to distribute the funds upon your death, either as a lump sum or gradually over time.

Lastly, there may be opportunities to create memorial funds or scholarships in your name with the DAF’s assets, further cementing your legacy in a tangible and impactful way.

Charitable Remainder Trusts (CRTs)

A Charitable Remainder Trust (CRT) can be an effective strategy for both income generation and charitable giving, particularly if you hold securities or other assets that have appreciated significantly in value over time.

With a CRT, you transfer your appreciated assets to an irrevocable trust. The trust then sells these assets tax-free, preserving their full market value, and pays you a stream of income for a set period of up to 20 years or for life.

A Charitable Remainder Annuity Trust (CRAT) pays you a fixed amount of income over a set period. Meanwhile, a Charitable Remainder Unitrust (CRUT) pays a fixed percentage of the trust assets, which is recalculated annually.

Once the trust term ends, the remaining assets in the CRT transfer to the charity or charities of your choosing. This allows you to make a significant future gift to charity while benefiting from a reliable income stream during your lifetime.

Charitable Gift Annuities

Like a CRT, a Charitable Gift Annuity (CGA) combines strategic philanthropy with a reliable stream of income during your lifetime. However, with a CGA, you make the donation directly to a charitable organization.

In exchange, the charity promises to make regular, fixed payments to you for life. These payments can start immediately, or you can defer them until a future date depending on your income needs.

One of the most appealing aspects of a CGA is that the payments are typically higher than what you might receive from other income-generating investments. This is especially true if you’re older since the annuity rate is based on your age at the time of the donation.

At the end of your lifetime, any remaining funds from the original gift go directly to the charity you select, furthering your legacy.

Keep in mind both CRTs and CGAs can be complex charitable giving strategies that require careful planning. Be sure to consult with an experienced advisor if you’re considering either of these giving methods.

For Estates Above $5 million: Consider Bigger Charitable Giving Moves

If you’ve been fortunate enough to amass significant wealth during your lifetime, you may want to consider using your estate to make an even bigger impact on the world through strategic philanthropy.

Private Foundations

One of the key advantages of a private foundation is the level of control you maintain. As the founder, you can guide the foundation’s philanthropic efforts, determine its mission, and decide how to distribute its funds.

Furthermore, this control can extend beyond your lifetime, as you can appoint successors to carry forward your philanthropic vision. This allows you to create a family legacy of giving that spans generations.

Indeed, private foundations can provide significant tax benefits during your lifetime and preserve the value of your estate, so future generations can continue to make an impact with your wealth. However, keep in mind managing a family foundation is a major undertaking that often comes with a variety of complex administrative and legal challenges.

Charitable Lead Trusts (CLTs)

If your estate is substantial, a Charitable Lead Trust (CLT) can provide significant tax benefits, as well as the opportunity to leave an enduring legacy of charitable giving.

A CLT is an irrevocable trust that makes annual payouts to a charity for a set period. This period can be a specific number of years, your lifetime, or the lifetime of another individual. At the end of the term, the assets remaining in the trust revert to you or transfer to your heirs.

Since the gifts you make to charity often reduce the size of your estate over time, a CLT can significantly lower the taxes you’d otherwise owe by transferring your assets directly to your heirs. In some cases, it’s possible to pass on a substantial amount of wealth to the next generation entirely free of estate and gift taxes.

Ultimately, a CLT may allow you to make a meaningful impact with your wealth during your lifetime while preserving your wealth for future generations to continue honoring your legacy. However, given their complexities, it’s best to consult with an expert when setting up any type of irrevocable trust.

Milestone Asset Management Group Can Help You Shape Your Legacy Through Charitable Giving

Charitable giving isn’t just about the financial resources you contribute, but the values and spirit that guide your giving. With careful planning and an experienced guide, you can support the causes close to your heart and leave a legacy that spans generations, regardless of your net worth.

If you’re ready to incorporate strategic charitable giving into your financial plan, Milestone Asset Management Group can help. We invite you to schedule an introductory phone call to learn more about how our team can help you achieve your estate and legacy planning goals.