A Legacy of Freedom

From the idealistic patriots who gave their lives, not for their country - because it didn't exist at the time - but for a vision, to the millions of soldiers who came after them, we owe a great debt for the prosperity and way of life made possible by the freedom we enjoy.

About ten years ago, I worked with a client who was a part of the D-day invasion.  His ship was sunk before it was able to reach shore and he and the other soldiers from the ship could only float in the water about a half mile away and watch the battle unfold.  Eventually, he and the others were rescued and sent in with the second wave, but for a while he witnessed first hand the courage and sacrifice required to protect the world from tyranny.

Those first American soldiers at Lexington and Concord probably only had a small idea of the founding fathers' vision, but they fought for a better life for their children and descendants.  And for over 230 years, brave men and women have continued to serve to preserve and protect the freedom that makes our great country unique.  Men and women who were willing to make the ultimate sacrifice to preserve the ideals and values that have created the greatest nation in history.

They made this commitment, not just for themselves and their families, but for the lives of those for generations to come.  That is their legacy.

Do you have any stories of friends or relatives who served our country?  Is there anyone you would like to honor for their dedication and service.  Use the comment section to make a brief tribute.  Let us honor their legacy of freedom.

Donor Advised Funds

An extremely popular and efficient means of creating a legacy to your community is through the use of Donor Advised Funds.  A Donor Advised Fund is a charitable fund set up through a Community Foundation. It is an alternative to a Family Foundation for those who do not want to take on the responsibility of administration, potential liability, record keeping and lack of privacy. Since Donor Advised Funds are set up and administered through Community Foundations, a good starting place for this post would be a definition and discussion of Community Foundations.

What is a Community Foundation?

A Community Foundation is a public charity organized under the Internal Revenue Code. They are generally set up to serve a specific geographical area. Community Foundations provide grants to a number of different charities in its service area. Instead of concentrating on one charitable cause, a Community Foundation dedicates itself to serving the wide variety of needs of its community and donors.

Community Foundations are set up as endowments and the grants given by it come solely from the income of those endowments. Many Community Foundations limit the amount of grants they can give each year to a specific percentage of the endowment principal. In this way, the endowment remains stable during times of market volatility.

In setting up a Donor Advised Fund, you would donate a sum of money or property to the Community Foundation as a permanently endowed fund. Each year the income from your fund would be available to contribute to charitable organizations or causes in the community. You and your family are allowed to direct or advise how the grants are to be distributed each year.

Comparison of Donor Advised Funds with Family Foundations.

1. Donor Control. Both Family Foundations and Donor Advised Funds provide the donor with various levels of control in selecting grant recipients. With a Donor Advised Fund, you and your family, as the donor, can make advisory recommendations to the Community Foundation who has the ultimate authority to select the recipients.

You have complete control in selecting grant recipients (subject, of course, to IRS requirements) if you create a Family Foundation. Founders can create their own board, have a wide choice of investments and absolute discretion in recipients. Family Foundations allow you the full range of flexibility and control.

2. Set Up Costs. Donor Advised Funds are much less expensive to create than Family Foundations. Family Foundations require the formation of an entity, either a nonprofit corporation or a trust, with all of the appropriate legal fees and filing costs. The Donor Advised Fund is created within the Community Foundation and, in most cases, can be set up with a simple agreement.

3. Record Keeping and Administration. Management, record keeping and tax reporting for a Donor Advised Fund is provided by the Community Foundation usually at a low annual fee (1% of less of the fund balance). The board of a Family Foundation has the responsibility of administering the Family Foundation, although it can retain outside management services.

4. Charitable Tax Deductions. With a Donor Advised Fund, cash contributions are deductible at the full rate (up to 50% of the donor adjusted gross income "AGI"). Family Foundations’ tax deductions are limited to up to 30% of the AGI. Contributions to Donor Advised Funds of marketable securities and other property such as real estate receive a charitable tax deduction for the full market value. With Family Foundations, the deduction for marketable securities is based on the full market value. However, for other appreciated property, like real estate, the deduction is limited to the donor’s cost basis in the property.

5. Excise Taxes. Family Foundations are required to pay a 2% annual excise tax on its net investment income. Donor Advised Funds are not subject to this tax.

For persons with smaller estates or those that do not require the control over the grant making process, a Donor Advised Fund is an attractive alternative.

Donor Advised Funds provide much more privacy. Because of the need for tax filings and reporting with the Family Foundation, it is easier for people to find out the identity of donors and how much money they contribute. An individual’s contribution amount to a Donor Advised Fund is not publicly available.

Leaving a Legacy to Your Community

Many people feel compelled to give back to their community. After all, what better way is there to leave your legacy than by helping others? A plan of charitable giving is the action behind the words of the Legacy Statement.

There are causes near and dear to each of our hearts that we have a desire to support. Unfortunately, many people don’t know how to set up a charitable plan. Even more unfortunate, many don’t believe they have the resources to contribute to charity.

There are many different ways to set up a charitable program. No matter what the size of your estate, you can create a vehicle that will allow you to give to the cause of your choice, on your terms, for generations to come. Even smaller estates can create a charitable legacy that will positively impact lives. Did you know that you can reduce and eliminate estate taxes through charitable giving? That it's possible to give a large portion of your estate to charity and still have your heirs receive a larger inheritance than if you had not given?

If you have a large estate, you are going to be a philanthropist whether you plan for it or not. If you make no charitable plan of your own, your default charity will be the United States Treasury.

Estate taxes are levied at the federal and state levels and confiscate a significant percentage of all estates that exceed the maximum estate tax credit. Some high net worth individuals have engaged in estate planning to be able to pass the maximum amount allowed by law to their heirs. But in a lot of cases, part of the estate is still subject to estate taxes. For these taxpayers, their legacy is contributing to the programs and operations of the government.

Think about it. Do you believe the government is doing a good job of applying our tax money? Or do you think you can make better decisions on how that money is used?

What a lot of people don’t know is that their charity doesn’t have to be the government. You can control that part of your estate that is earmarked to go to the government in the form of estate taxes. How much of an impact do you think your estate tax contribution will make to society? And what will it support? Will it be a program or cause that you feel strongly about, or will it be used in a way that does not represent your values? Remember, sharing your legacy is about passing on your values.

Fortunately, the government has provided us with certain credits and deductions to apply against our estate tax liability. The most powerful of these is the charitable deduction. Any portion of your estate that you contribute to a qualified charity is not counted as a portion of your estate that is subject to estate taxation. In addition, charitable contributions provide deductions that will reduce your income tax liability. In future posts I will show you how the charitable deduction can be used to actually increase the size of your estate.

A Brilliant Discussion

This afternoon, I was fortunate to be able to record a discussion I had with Simon T. Bailey about his book, Release Your Brilliance, and leaving a legacy. 

For those unfamiliar with Simon, he is a best selling author, world renowned speaker and, in his own words, a "Catalyst for Brilliance."  After building a successful career at Hyatt Hotels, Walt Disney World Resort, and the Disney Institute, Simon stepped away to create the Brilliance Institute.  The Brilliance Institute is an organization dedicated to building the world's most valuable resource -- its people.

He is sought out by Fortune 500 companies and individuals alike to inspire companies to clear obstacles to brilliance in their cultures, processes and people.  Some of his notable clients are Microsoft, Oracle, Verizon and State Farm Insurance.  Simon was named Central Florida's "Man of the Year" in 2000.

Release Your Brilliance is a guide that emphasizes to people "what they can do" and not the things they can't do which keeps them from achieving their potential.  According to Simon we are all born with brilliance; however, as we get older, our lives and the world cover and bury that brilliance.  Simon's book is a strategy for uncovering and releasing the brilliance we all have.

In our discussion, Simon spoke about the ability we have to influence others and to help them release their own brilliance.  He related a story about his father's inability to tell him that he loved him.  That the day when his father first told him he loved him and believed in him, it started a chain reaction in his family, from him telling his own son, to his brother expressing his love.  It is amazing to see how the smallest actions can have the biggest impact on others and create a legacy that spans generations.

Keep an eye on this blog in the future to find out how you can acquire a copy of our discussion.  In the meantime, you won't find a better way to improve your outlook on life than to read Release Your Brilliance.  It is available at Amazon.com and www.SimonTBailey.com.