An often-cited philanthropic goal among charitable-minded individuals is to develop a lasting impact that will live on after they are gone. Whether that means instilling in your children and grandchildren a tradition of giving, or developing a means of perpetual giving to continue your charitable habits after your time on Earth has passed, having the ability to make a financial difference and creating a legacy of giving can easily be accomplished by starting a Donor-Advised Fund (DAF).
A Legacy from Life Insurance
The Donor-Advised Fund is one of the most flexible tools for charitable gift planning. Assets donated to a DAF can be held, invested, or granted to qualified nonprofits. DAFs can also own life insurance policies so long as the DAF is the only owner and beneficiary of the policy. This is how many individuals are beginning to set up their philanthropic legacies.
A donor is able to set up a DAF, make annual gifts to the DAF, and take an annual tax deduction for their charitable contribution. That DAF can then be used to purchase a life insurance policy on the donor and pay the premiums from the fund. Then, upon the death of the donor, the DAF can begin making grants to the donor’s recommended charity in perpetuity based on the annual investment return and the recommended payout rate.
Example: Kari Phillips is interested in helping the homeless in her hometown. She opts to start the “Stop Hunger Fund” with Renaissance Charitable Foundation and donate $10,000 through cash or stock for the next 10 years. Kari is eligible to receive an income tax charitable deduction for her gifts. Renaissance purchases a life insurance policy on Kari’s life.
When Kari passes away, the proceeds of her life insurance policy will be paid out in her name to the programs she has recommended.
The Next Generation of Giving
In addition to the desire of individuals to make gifts beyond their lifetime, there are many who want to make their philanthropic efforts a family affair. Showing young people how philanthropic giving makes a significant impact to benefit the causes that are important to you will spark the behavior to continue over generations. While Family Foundations used to be the go-to method for generational giving, the start-up costs and the time it takes to maintain a foundation can be prohibitive when it comes to younger generations just starting out. A great alternative to the Family Foundation for generational giving is to start a DAF.
DAFs have gained in popularity because they are both more affordable to start and easy to maintain. Donors can establish a DAF today and begin recommending grants immediately, which caters to the instant gratification needs of the Millennial generation. By starting a DAF when the children are still at home and allowing them to recommend grants to their favorite charities, parents can open a line of dialogue that leads to the importance of charitable giving. Establishing those family members as the successive grant advisors for that DAF then allows a family to pass down the responsibility from one generation to the next.
How will you leave your legacy of giving? Click here to see if a Donor-Advised Fund is right for you, or call us to explore all your giving options.