Life After Business: Building A Charitable Legacy | Trust Point
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Life After Business: Building a Charitable Legacy

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Updated October 21, 2022

Christine Schmidt, CFP® Managing Director, Family Office

A donor-advised fund or private foundation can allow you to express your family’s values through charitable gifts.

For business owners with strong values, a commitment to their communities and a desire to make a lasting impact beyond their companies, philanthropy is a natural next step.

It’s not always possible for a business to continue or be passed on in a way that incorporates the people most important to owners. But an owner’s core values and contributions to worthwhile causes can continue to live on. Charitable giving is a way for business owners to establish a lasting legacy and involve friends, family members, or others in the process.

Developing and executing a philanthropic strategy requires some careful considerations, but with the right guidance, you can create a meaningful plan that incorporates generations of loved ones and achieves your charitable goals. There are two primary ways to do this: through a donor-advised fund or a private foundation. Here’s a look at what each has to offer.

Donor-Advised Fund

A donor-advised fund is essentially an investment account for charitable giving, set up through and controlled by a public charity. Once established, you can make contributions to the fund whenever you want; as assets grow, you can recommend grants to your preferred charitable organizations. Giving is generally limited to public charities, but there is no annual requirement, so grants can be made whenever it makes sense to do so.

A donor-advised fund is a great vehicle for succession planning because you can name family, friends or other individuals as successor donors who are able to determine what organizations receive grants from the fund. It’s a way for a family to come together and make decisions on who they would like to give grants to, based on their shared values.

Donor-advised funds also create tax advantages, especially for anyone with highly appreciated assets. The donor will get a deduction for their contribution based on market value and will avoid the capital gains tax when those assets are sold.

Private Foundation

A private foundation can be set up in two ways: as a charitable trust, in which the donor is the trustee, or as an operating board, much like a business. So, similar to a donor-advised fund, a private foundation can include participation from family members or other outside parties.

Unlike a donor-advised fund, a private foundation does require involvement from an attorney to create, and because of compliance requirements and other issues, it can require more effort and expense to run, but there are benefits to putting in the work. The big differentiator from a donor-advised fund is that a private foundation isn’t limited on the distribution of funds and where they go. They can be put toward traditional charities, community groups, scholarships and even individuals. Recipients can be as limited or broad as you want, from a set group of charities to groups based on donor-set guidelines. Unlike a donor-advised fund, a distribution of at least 5 percent is required from private foundations each year.

Foundation boards can change over time, with new generations of family members added as appropriate. The board arrangement can serve as a good educational opportunity for young family members, involving them in important contribution decisions. If a foundation is run as a trust, family members have an opportunity to understand the workings and responsibilities of being a trustee, and how the grant-making process is much like being a good steward of wealth.

A Partner You Can Trust

Choosing the best way to build a philanthropic legacy starts with a conversation — with your loved ones and a trusted financial professional. What is your capacity for overseeing a charitable effort? What is your family’s interest and ability to participate? What values are going to drive your contribution decisions?

Whether you choose to set up a donor-advised fund or a private foundation — or if you’re unsure — our team at Trust Point has the experience and expertise to help you make the best decision. We understand family dynamics and know how to work with all stakeholders to build, execute and support a plan that ensures a lasting impact.

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Christine Schmidt, CFP® Managing Director, Family Office