Legacy Gifts: Should You Give It Away Now or After You’re Gone?
December 20, 2016 | Enjoying Retirement
There was a time a few years ago when I had the opportunity to lead our company’s charitable foundation. The experience taught me an important lesson about giving: The only thing better than making a donation to a deserving non-profit is helping to shape the plan for how the money will be used. It’s so much fun to roll up your sleeves and brainstorm ideas about how a gift can help an organization achieve its goals.
That’s one of the biggest advantages of giving during your lifetime: You can experience the joy of participating in the process and the satisfaction of seeing the impact of your generosity. And that’s true whether you’re making donations on behalf of a corporation or as an individual who wants to leave a legacy through gifts to family, a charity or an alma mater. I’ve been lucky enough to do both.
But as you think about the question of when to gift—while you’re alive or after you’re gone—there’s much to consider beyond the benefit of being able to observe the impact of your legacy gifts. Here are some things to think about:
Advantages of Gifting Now
- You can have an impact on immediate needs. If you plan to leave money to your kids or grandkids, doing so now may help them cover current major expenses, like the cost of college, a wedding or a down payment on a home. (Will they really need your financial help when they’re 55 or 60?) Or if your favorite charity has launched a capital campaign to raise money for a new building, making legacy gifts today may help motivate others to give.
- You decide what’s “fair.” If you have more than one child or grandchild, each of your beneficiaries might expect to be treated equally when it comes to receiving an inheritance. But the fact is, the people in your life have different needs, talents and resources. And as a result, you may want to give more money to some and less to others. It’s easier to do that discreetly when you’re alive.
- There are tax advantages. If you’re thinking about leaving a financial legacy for your family while you’re alive, you can give up to $14,000 ($28,000 if you and your spouse split gifts) per year to an unlimited number of individuals without having to pay a gift tax. If you give to qualified charitable organizations, you typically qualify for a tax deduction of up to 50 percent of your income. There are also advantages to donating investments that have appreciated in value.
- You may receive personal recognition for having made a gift (if that’s important to you).
Advantages of Gifting After You’re Gone
- You can adjust your planned giving if circumstances change. If you encounter extreme circumstances—unexpected major expenses in retirement—you may have more financial flexibility to respond to the situation if you haven’t yet given away the money.
- There may be tax advantages. Waiting until death to transfer highly appreciating assets, such as stocks or real estate, enables your beneficiaries to receive what’s known as a “step up” in basis and sell the assets without paying capital gains tax (which would be imposed if the assets were sold during life without a basis step up).
- If you give using life insurance, you’ll give more after you’re gone. If permanent life insurance is part of your financial plan, the death benefit paid to your heirs or chosen charity will generally be larger than the amount you paid in premiums. Life insurance allows you to make affordable premium payments during life and transfer a substantial legacy at your death.
- You can avoid being the center of attention. If you wait until after you’re gone to give a gift, you won’t have to worry about being publicly recognized if privacy is important to you.
Whether you plan on leaving a financial legacy in life or in death, make gifting a deliberate part of your overall financial plan. By planning in advance, you’ll have time to identify the most efficient way to fund your gifting goals. And you’ll be doing yourself a huge emotional favor, too. So often, people struggle with spending their money later in life because they’re worried there won’t be anything left for their kids or grandkids or charity. But if you have (and follow) a plan for your legacy gifts, you’ll give yourself permission to spend your money and enjoy yourself.
This publication is not intended as legal or tax advice. Taxpayers should seek advice based on their particular circumstances from an independent tax advisor.