July 2024 Professional Advisor Newsletter
The Community Foundation of South Alabama
Giving Today. Growing Tomorrow. Find out how you can help make southwest Alabama a better place.
Hello and happy summer from the Community Foundation of South Alabama!? Every year, the Giving USA study reports the status of charitable giving in America. Adjusted for inflation, 2023 numbers were down, which means it’s been more difficult for our region’s charities to meet the needs of the people they serve. This is relevant to your clients because for many of them, philanthropy is an important part of financial plans and family traditions.? In this issue, we’re sharing insights to help with your client conversations about charitable giving.?Of course, please reach out anytime! It’s our pleasure to work with you as you help your clients achieve their charitable goals for this year and many years to come.
Happy summer,?
Your Community Foundation
Planning for a sunset: Lock in a higher exemption, unlock a legacy
Without legislation to prevent it, the sunsetting of current estate tax laws at the end of 2025 will dramatically reduce the federal estate tax exemption from $13.61 million per person in 2024 to approximately $7 million in 2026 (this includes adjustments for inflation). This change would affect many high net-worth individuals and families, likely exposing many more estates to federal estate taxes.
It is impossible to predict whether or not legislation will prevent the sunset. Even so, it is important for advisors to prepare for client discussions and start considering estate planning strategies now, especially techniques that incorporate multi-generational gifts and charitable planning.
Indeed, for a client who is charitably-inclined, making larger lifetime gifts to charity and arranging for charitable bequests will help reduce the client’s taxable estate because of the charitable estate and gift tax deduction. Donor advised, field of interest, designated and unrestricted funds at the Community Foundation are flexible and effective charitable recipients of both lifetime and estate gifts.?For some clients, you may wish to begin exploring a comprehensive, multi-generational wealth transfer plan, potentially using key tax-planning vehicles:
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Charitable lead trust
Charitable lead trusts (CLTs) may be particularly effective in the current environment. These trusts can provide income to your client’s fund for a set period of time, with the remaining assets passing to family members. Right now, the higher exemption allows for potentially significant initial funding of such trusts. This is because the value of the remainder interest counts toward the client’s estate and gift tax exemption.
Generation-skipping trust
A generation-skipping trust?is an irrevocable trust that can benefit a client’s grandchildren and later generations. This trust utilizes a client’s generation-skipping transfer (GST) tax exemption (which parallels the estate and gift tax exemption). This type of trust could allow a client to take advantage of the higher exemption before it potentially decreases in 2026. It is possible under some states’ laws for these trusts to go on for many generations in a “dynasty” format, such that each generation benefits from the trust’s income (and potentially principal for health and education) without the trust’s assets being included in the beneficiaries’ estates for estate tax purposes.?
Multi-generational fund at the Community Foundation
Alongside a charitable lead trust or generation-skipping trust, or as a standalone, a client can establish a donor advised fund at the Community Foundation that can function much like a family foundation, with successive generations serving as advisors to recommend grants from the fund to carry on a tradition of supporting the causes that have been most important to the client during their lifetime.?
Our team at the Community Foundation is here to help you achieve your clients’ long-term charitable goals, even in the midst of uncertainty concerning the estate tax laws. Reach out to our team at the Community Foundation to learn more. We are here to help!?
Contact us today by calling 251-438-5591
The team at the Community Foundation of South Alabama is a resource and sounding board as you serve your philanthropic clients. We understand the charitable side of the equation and are happy to serve as a secondary source as you manage the primary relationship with your clients. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.?