Crafting a Charitable Legacy: The Power of Donor-Advised Funds in Estate Planning

September 12, 2023

Throughout the state of Maryland, the attorneys at Stouffer Legal have had the privilege of guiding countless clients through the intricate maze of estate planning. For many, the initial goal is clear: ensure that their loved ones are financially secure in their absence. However, a deeper dive reveals an aspiration that transcends financial security: the desire to leave a lasting legacy. A legacy that is not only felt by their immediate family but also resonates within the broader community. This is where donor-advised funds (DAF) come into play.

Understanding the Donor-Advised Fund (DAF)

A DAF, in its simplest form, can be likened to a charitable savings account. But its impact and flexibility go well beyond that comparison. Let’s delve into its workings:

  1. Starting a DAF: The journey begins with an application. Next, you commit to an irrevocable, tax-deductible contribution. Think of this as seeding your charitable vision.
  2. Personalizing Your Fund: Naming your DAF isn’t merely administrative. It’s a chance to set its tone and direction. A name such as 'Smith Legacy for Children's Education' is more than a label—it's a mission statement.
  3. Involving Trusted Advisors: This isn't a journey you undertake alone. By designating trusted family members or friends as joint or successor advisors, you're laying down a framework for collaborative philanthropy.
  4. Guiding Its Path: While the principal gift to the DAF is set in stone, how it’s used remains dynamic. Advisors are endowed with the power to recommend investments and chart out grant distributions.
  5. Tax Implications: The immediate benefits are twofold. Firstly, the assets you contribute during your lifetime are met with a prompt tax deduction. Secondly, the potential for tax savings looms large, especially when you consider bequests and certain state inheritance implications.
  6. Broadening Its Reach: DAFs are marvelously versatile. They can be beneficiaries for a myriad of instruments including life insurance policies, retirement plans, or even charitable trusts.

Amplifying Your Charitable Intent with a DAF

  • Strengthening Family Ties Through Philanthropy: There’s an innate joy in giving, and it’s magnified when shared. Inviting younger family members to act as joint advisors is an excellent way to pass on values, foster unity, and collectively drive change.
  • The Beauty of Simplicity: Philanthropy, while rewarding, often comes with logistical challenges. With a DAF, these evaporate. Compliance, accounting, tax requirements—all are taken care of by the DAF sponsor. It’s philanthropy without the paperwork.
  • Harvesting Tax Benefits: A DAF isn't just about giving—it's about smart giving. When you infuse it with appreciated assets, you cleverly sidestep capital gains taxes. And the full fair-market value of the asset? It’s all yours as a deduction.
  • Creating an Immediate and Lasting Impact: The allure of a DAF lies in its dual timeline. Not only does it serve as a conduit for your present-day charitable pursuits, but with a robust Legacy Plan in place, it ensures that your chosen causes receive unwavering support long after you've passed.

By 2020 standards, the hovering estate tax exemption (at $11.58 million for individuals and a whopping $23.26 million for couples) has significantly eased concerns around estate taxes. However, in the realm of estate planning, it's essential to understand that while financial security is paramount, true fulfillment often comes from the heart—a heart that seeks to give, nurture, and uplift.

In our offices in Annapolis, Towson and beyond, we've seen how thoughtful estate planning not only secures the future but also shapes it. If your vision includes creating ripples of positive change, consider embedding a DAF into your estate plan. Through it, your legacy can be one of boundless generosity and transformative impact.

At the crossroads of foresight and compassion, we craft futures—one enduring legacy at a time.

To get started crafting your family’s Estate Plan you can begin by clicking here to view our online Estate Planning, Asset Protection and Elder Law workshop. Our commitment is to ensure that your vision for your Estate Plan will be a reality for you and your loved ones.

Photo credit: Monumental Wealth Management

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