Donor-advised funds: A powerful estate planning tool
Your client’s fund at Akron Community Foundation can be an ideal recipient of estate gifts through a will or trust, or through a beneficiary designation on a qualified retirement plan or life insurance policy.
Bequests of qualified retirement plans in particular can be extremely tax-efficient. This is because charitable organizations such as the community foundation are tax-exempt. This means the funds flowing directly to a client’s fund at the community foundation from a retirement plan after the client’s death will not be reduced by income tax. This also means the assets will not be subject to estate tax.
Don’t overlook life insurance, either. Not only is your client able to designate a fund at the community foundation as the beneficiary of a life insurance policy, but your client also may elect to transfer actual ownership of certain types of policies. For example, when your client makes an irrevocable assignment of a whole life policy to the client’s fund at the community foundation, a tax-deductible gift of the cash value of the policy occurs at the time of the transfer. A gift like this can ease a client’s income tax burden, especially if the foundation continues to own the policy and the client makes annual tax-deductible gifts to cover the premiums.
Here are three key takeaways to remember about donor-advised funds and estate planning:
- Your client may already have established a donor-advised fund at the community foundation that they are using to make annual gifts to charity. This donor-advised fund can be the recipient of a charitable bequest. If your client has named their donor-advised fund in a planned gift, ask them to let us know so we can recognize them in our Edwin C. Shaw Society.
- Even if your client is not actively using a donor-advised fund currently, they can still set up a fund now to receive a bequest later. When your client passes away, the fund will be in place to accept the assets specified in their bequest.
- Your client can adjust the terms of their donor-advised fund at any time before their death. This gives your client maximum flexibility to change charitable beneficiaries without the need to amend a will or trust. Clients love the ease and flexibility this offers and will appreciate you bringing this technique to their attention.
Akron Community Foundation makes it easy for you to draft bequest terms in legal documents, including beneficiary designations of retirement plans and life insurance policies. Please contact our team for the exact language that will ensure alignment with your client’s intentions. Our team also will work with you on the terms of the donor-advised fund itself. For example:
- Your client can use their donor-advised fund as a way to keep the next generation – or generations – involved with the family’s philanthropy and carry on their family’s legacy of community support. Surviving family members can serve as advisors to the fund and make decisions about which causes and organizations to support.
- It’s also possible to create several donor-advised funds – one for each grandchild, for example – so that each beneficiary has their own charitable fund.
To learn more about including your client's fund in their estate plans, contact Laura Lederer, senior director of development and advisor relations, at 330-436-5611 or email@example.com. We’re always available to answer your questions about philanthropy or to schedule a personal consultation with you and your clients – all at no cost.
This content is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.