Bunching, long-term appreciated assets, and the fruits of younger generations utilizing DAFs in charitable estate planning.
Developing a thorough estate plan isn’t only important for Baby Boomers and Gen Xers. Millennials, who now make up nearly a quarter of the population in the United States, may prove to be more enthusiastic planners than their parents and grandparents, according to the 2022 Estate Planning Study: Millennial Estate Planning Continues in a Pandemic.
What does this mean for planning gifts to charity?
Millennials may be interested in setting up charitable gift vehicles earlier in their lives than previous generations. And because millennials tend to be better savers than their elders, they are discussing philanthropic intentions at earlier ages.
What’s an example of a giving technique that is well-suited for millennials?
As they build careers, switch jobs, and start businesses, millennials’ incomes may ebb and flow from year to year. This makes “bunching,” or “bundling,” through a Donor Advised Fund (DAF) very useful. Because contributions to the DAF are eligible for an immediate tax deduction--but are not required to be granted from the fund to charities right away—donations can be “front load” into a DAF at a level that takes advantage of itemizing deductions during a high-income year, and then contribute less to the DAF in lower income years. Each year, advisors can recommend grants from the DAF to favorite charities according to the timeframe that aligns with their goals for supporting those organizations, regardless of income in that particular year.
Does bunching work with long-term appreciated assets?
Yes! Although it may seem obvious to professionals in the financial world, it’s not always top of mind for taxpayers to remember to donate long-term appreciated assets to their DAF. This is especially true of millennials who only now might be reaching a point in their lives when they own stock or other assets that have gone up in value. Donating an appreciated asset is tax efficient because the asset given to the DAF or other public charity typically is deductible at the asset’s fair market value. The charity, in turn, pays no capital gains tax on its sale of the asset, thereby generating more dollars to support charitable causes than would have had the taxpayer sold the asset and given the proceeds to charity.
Does it work to give real estate?
Yes! Real estate is an excellent long-term asset to donate to a DAF, especially now. In late 2021, buying a second home appeared to be a strengthening trend. While higher interest rates and inflation might dampen that trend in the short term, the ability to work from anywhere is a reality that’s unlikely to disappear. This means even younger taxpayers, not just retirees, may be buying and selling second homes and even rental properties. Both are good candidates to donate real estate to a DAF. As with gifts of other long term appreciated assets, a gift of real estate to a DAF avoids capital gains taxes and generates more money for charitable causes than selling the property first and donating the proceeds.
How does a DAF support legacy planning?
Donor advised funds can be incorporated into an estate plan when the DAF sponsor is named as recipient of a bequest of a will or as a beneficiary of a qualified retirement plan, life insurance policy, or charitable trust. The DAF advisor can leave specific instructions for how the fund continues to support charities after they are gone. Donor Advised funds can be valuable tools for both lifetime giving and legacy planning.
Any fun facts here?
Millennials’ end-of-life planning preferences have departed from the previous generations’ traditions, according to the study, right down to the most popular songs played or performed at a memorial service. Sought after titles now include Beyonce’s “I Was Here” in addition to Frank Sinatra’s “My Way.”
We look forward to working with you and your advisors to establish your philanthropic legacy. Contact Planned Giving Director Jamie Goble at (254) 754-3404 or firstname.lastname@example.org.