Leaving a Legacy

Eight Positive Steps for Reducing Your Gift and Estate Tax While Giving Something Back

Leaving a legacy is rarely just about money. For many of us, it means contributing to something meaningful and knowing we're leaving the world a little better off than we found it. It's behind our core values: building relationships with like-minded people, supporting our communities, and setting an example for our families.

Whether you want to make a contribution during your lifetime or leave a legacy for future generations, your core values and personal interests should align with your financial objectives. Armed with a little information, you can strike a balance between the emotional rewards of giving and preserving your wealth.

Here are eight ways you can protect your heirs, preserve your estate, and still support the values you believe in.

Women Leaving a Legacy

Women live longer than men and often end up managing the trillions of dollars passed from one generation to the next. To learn more about managing these funds, look for:

  • Women's funding networks located in cities and towns across the country

  • Donor-advised funds designed to support multiple charities and nonprofits within a community

  1. Add a bequest to your will. You can deduct cash or property contributions (at fair market value) made to qualified organizations, including:

    • Community chests, corporations, trusts, funds or foundations operated solely for charitable religious, scientific, literary, educational, or cruelty prevention purposes or to promote amateur sports competition

    • War veterans organizations

    • Domestic fraternal societies

    • Some nonprofit cemetery companies

    • The US government or any state, district or US possession used solely for public purposes. (For information on charities outside the US, visit http://www.irs.gov/publications/p526.)

    Deductions of property valued at more than $500,000 must be accompanied by a qualified appraisal submitted with your tax return (this doesn't apply to cash, inventory or stock). If you're converting a Traditional IRA to a Roth, you can donate to a charitable account to offset the resulting taxes.

  2. Create a family or private foundation. Foundations may bring you substantial federal tax benefits. Family foundations are operated by a bank, founder, family members or hired staff, which holds, manages and distributes gifted assets. Your foundation can distribute 5% or more of its funds through grants set up with an endowment that upholds the values you believe are important.

    While foundations are very complex, your legacy can exist without end and provide a learning experience for your family. As the donor, you maintain a high level of control and administrative engagement during your lifetime. However, you must adhere to a number strict government rules. Working with a skilled advisor is a must.

  3. Set up a donor-advised fund within a community foundation. These are easy to start, have fewer administrative costs from staffing and legal fees, and still give you some control over distribution. And they provide opportunities for family learning by actively providing college scholarships and grants to a variety of nonprofit organizations within your own city, state or region.

    A community foundation is a collection of endowed funds established by several donors. They offer great flexibility in the charities they support, the types of donations accepted (including real estate, stock and art), and can be funded in several ways from bequests to deferred gifts. That flexibility extends to your involvement as well. You can work with the foundation to make grant and distribution decisions or have it manage this process for you.

  4. Consider a trust or life-income gift. Trusts are deferred gifts and a good option if you have unique tax and estate issues and want to (1) give assets now for use later and (2) receive a direct financial return from your giving.

    A Charitable Remainder Trust (CRT) lets you transfer assets to a charity in exchange for a regular payout, typically 5% of the trust's value.

    You can purchase a Charitable Gift Annuity (CGA) from a charity for a lump sum and get fixed, monthly or quarterly income for life. Or you can fund a CGA with appreciated securities, postpone paying the capital gains tax, and get an immediate, partial tax deduction based on actual gift value (not including your payout).

    A CGA has high minimums of $250,000 to $400,000, significant set-up and administrative fees, and is best for donors with no heirs. It's an irrevocable contract owned and managed by the charity, which benefits from the interest earned until the donor's death.

  5. Start a Charitable Lead Trust (CLT). A CLT is a good solution for wealthy families who are looking for tax reduction strategies and want to provide for and protect heirs who don't need the income now. CLTs provide annual distributions (called lead interest) to one or more charities and can be funded during the donor's lifetime or at death. A CLT offers flexible annual annuity payouts for a fixed number of years or over the lifetime of non-charity beneficiaries. All assets return to the donor or heirs at the end of the allotted term.

  6. Designate a charity as your life insurance beneficiary. This is a simple means of providing a charity with death benefit proceeds while reducing your estate. You can donate anonymously and your asset transfer is incontestable by your heirs. You can also revoke your gift if your financial situation changes. The charity can continue to pay the policy premiums if you decide not to.

  7. Add a charitable giving rider to your life insurance policy. This is a good solution for high net worth families with policies having a face value exceeding $1 million. The rider pays 1% to 2% of the policy's face value to your designated charity. A rider carries no additional premiums or administration fees for you, and there's no decrease in your death benefit. Check with your insurance agent as maximum allowable gift amounts may apply, and some charities do not accept life insurance donations (especially term). All charities designated must be qualified 501(c)3 organizations.

  8. Donate a sizable life insurance policy. This approach can greatly reduce a taxable estate and is an excellent way to dispose of a policy you no longer need. You might also get a current income tax deduction at fair market value. Your charity or nonprofit receives the face amount of the policy upon your death and a much larger donation than provided by a charitable giving rider. There's no limit on the size of the policy you can donate, and your cost is minimal.

Limits on Deductions

The amount you can deduct for charitable contributions cannot be more than 50% of your adjusted gross income (AGI). Your deduction may be further limited to 30% or 20% of your AGI, depending on the type of property you give and the type of organization you give it to.

A BB&T Wealth Advisor can guide you toward the best solution or combination of solutions for your particular financial situation. You can have easy peace of mind knowing you've left your family well prepared and your community fully supported.

Speak with an Advisor