Planned Giving vs. Legacy Giving?
How are donors to go about understanding planned giving vs. legacy giving? Aren’t most gifts by definition “planned?” The term “planned giving” has always annoyed me even though, as an estate planning attorney, I use it frequently. Obviously, a degree of planning is involved anytime that we make a gift. “Planned giving,” in the context of a transfer of funds without consideration to a philanthropic organization (like the Episcopal Community Foundation), may be made during a donor’s lifetime or at death.
Planned giving generally involves a large gift from accumulated assets. This is opposed to an “annual gift” which is generally made from a donor’s discretionary income. Often, annual gifts are of a lesser amount. The term “legacy giving” may better encompass the idea of a planned gift. It implies that something is left behind by, and is in commemoration of, the donor or the values that the donor supports.
Types of Planned Gifts
Planned gifts may be made with a variety of assets and may utilize multiple types of vehicles. The assets involved may include cash, securities (stocks and bonds), life insurance, real estate, and personal property. They may be made during life and at death. We often think of a planned gift as being made by a donor in their Last Will and Testament. While we should all have a will or a trust to direct the distribution of our property at death, other options for planned giving are available and are very useful.
In working with individuals in planning for the disposition of their estates, I often suggest that they utilize their retirement accounts to fund the charitable gifts that they wish to make. An advantage to making gifts from an individual retirement account (IRA) is that the funds in the IRA on which the donor has not paid income taxes may be transferred to a charity without any income tax on the funds ever being paid. Whereas, a transfer of the IRA type funds to an individual results in the payment of the deferred income taxes by the recipient of the IRA funds.
Which Type of Gift is Right for You?
When clients express an interest in making a charitable gift at their death, I suggest they use their deferred income. Consider retirement type accounts rather than from assets in their estates on which income taxes have been paid. In addition to the tax advantages of making gifts from IRAs, the donor is in control of the process. The gift can be made by completing a beneficiary designation form provided by the custodian for the IRA account. Subsequently, the donor may modify the designation without having to change or update a will or trust. Review with your attorney to confirm that the designation conforms with your wishes and intent. Additionally, you want to ensure it coordinates with your other planning documents. Considerations like these are helpful for understanding planned giving vs. legacy giving.