If you plan to leave a legacy to your university, charity, or community organisation, it is important to choose a philanthropic strategy that reflects your values and goals. The alternative is that your generosity might not be recognised appropriately or worse, you may end up giving to an organisation that has changed its focus, become less effective or uses your gifts for a different purpose than originally anticipated.
There are many different methods one can use to make a philanthropic gift, via your family foundation, a donor advised fund, named gifts in your estate plan, or directed gifts. Traditionally, donors gift cash, low basis stock or the sale of assets such as real estate of art after their demise.
But another method that has become more favoured is via the use of a life insurance policy. This can be an excellent way to multiply the impact of a philanthropic gift where you purchase a policy using your accumulated funds and designate an institution or organization as the owner of the policy.
However, from the institution’s point of view, your gift will not help to support research, scholarships, or charitable activities immediately because the funds won’t arrive until sometime in the future. So, if you were making a $10 million gift to a university in hope of funding research, although the intention is honourable, the grant cannot be spent until the payment of the death benefit.
But if you gave the same dollar amount in stocks, bonds, real estate, or other tangible assets, you could link that gift to an appropriate opportunity and enjoy the personal rewards during your lifetime. As a bonus, if you donate assets that have significantly appreciated in value since their purchase (low basis), you could potentially reduce tax liabilities facing your estate.
When making a substantial gift, we recommend that you negotiate an agreement designed to protect your intent of making such a donation. For instance, you might want your gift to fund research on cancer, early childhood education or at-home services for seniors. That agreement should hold the institution accountable for meeting certain milestones and provide you with an annual report on how your donation is being used, their progress and any significant changes to the project.
If you are funding research at an academic institution, these agreements are critical, as they should give you the right to cancel your gift should priorities change at the college or university, or if the key faculty member dies, becomes incapacitated or moves to a different institution. Additionally, the college or university might decide it wants to use your gift for another purpose, such as meeting operational expenses, regardless of your own desires.
Before going down the route of making a philanthropic gift, it is important to sit with your family to create a mission statement and decide what is important. Determine how much money you wish to gift, over how many years or generations and then focus on using the right structure. It is my opinion, that following these steps strengthens the impact of your gifts, passes on values and introduces your children and grandchildren to the personal benefits of philanthropy.
We have the experience to help you identify the many ways you can leave a legacy and guide you in choosing an appropriate philanthropic strategy.