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Transfer of wealth: Following the money

“The greatest wealth transfer in modern history has begun,” according to a mid-2021 report in the Wall Street Journal. And, with tax reform’s big bite into estate values off the table, at least for now, many of your older clients may be thinking seriously about their legacies.

And these legacies will be significant. As of March 31, 2021, according to data collected by the Federal Reserve, Americans in their 70s and older had a total net worth reaching almost $35 trillion. By 2042, an estimated $70 trillion will change hands, including an estimated $9 trillion flowing to charities, according to research conducted by Cerulli Associates.

As you advise an older client, an important part of the conversation might be to determine the best charitable giving vehicles to achieve your client’s community goals, particularly evaluating the potential role of a Donor Advised Fund or private foundation. Increasingly, your clients are learning about their options in mainstream media and likely have a greater level of awareness about charitable giving options than ever before, especially in the wake of the recent twists and turns concerning potential tax reform.

Here are key points we suggest to keep handy for those conversations:

  • A Donor Advised Fund at CFAAC costs only $250 to set up, and ongoing fees are minimal. 
  • A Donor Advised Fund can be created quickly–within a week or even days. A private foundation, by contrast, requires establishing a legal entity through state and IRS filings.
  • Donating hard-to-value assets to a Donor Advised Fund delivers better tax benefits (deduction of fair market value) than a gift of the same assets to a private foundation (deduction of cost basis).
  • A client can deduct a greater portion of Adjusted Gross Income (AGI) (e.g., cash deductible up to 60% of AGI) with a gift to a Donor Advised Fund than with a gift to a private foundation (e.g., cash deductible up to 30% of AGI). 
  • Ongoing operations of a Donor Advised Fund through CFAAC are very easy, with no tax filings required. 
  • Sometimes, both a private foundation and a Donor Advised Fund are useful tools to meet a client’s charitable giving goals. The team at CFAAC can help you develop a structure for your client that maximizes the benefits of each vehicle within an overall philanthropy strategy.
  • Finally, remind your clients that the best time to set up their philanthropic plans is right now. By being proactive, your client has nothing to lose and everything to gain in ensuring that their charitable wishes are carried out. To that end, CFAAC regularly works with advisors helping clients who wish to establish funds to receive bequests after the clients pass away. A simple fund agreement allows a client to describe charitable intentions, including naming advisors and suggesting nonprofits to receive fund distributions, to guide the heirs through the client’s charitable legacy. A fund agreement can be modified any time before your client’s death. 

As always, the staff at CFAAC are always available to talk through possible options for your clients in advance of your conversations or to be part of meetings you may set up with them. As philanthropic advisors, we are here to support you and your clients. Call us at 410.280.1120.



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