Creating a Legacy

By Jeff Schroeder, Partner

In recent years, I’ve been focused on two main areas of practice: privately owned businesses and not-for-profit organizations. It’s at the intersection of these two topics that we come to the topic of today: creating a legacy.

What do we mean when we talk about legacy? Often the word is defined in financial terms such as a “will” or “bequest”. I like to think of that in broader terms. How will you be remembered by your family? By your colleagues? By your community?

A legacy is something only you can create. But have you considered leaving a financial gift that can make an impact for years to come? I sit on the board of a private foundation that was created by a businessman named Albert Zari. His wife pre-deceased him and they had no children. With our firm’s assistance, he created a private foundation and left instructions that earnings of that foundation be used to make impactful donations and scholarships for students in low-income families. He specified the schools to work with and today that foundation supports over 60 students. Annually, we give close to $500,000 for these scholarships.

Mr. Zari will be remembered for years, and students will benefit from his kindness and generosity for many years to come. But what is a private foundation? Well, it is a non-profit organization with a limited number of donors. It has fewer complex requirements than a 501 c 3 charitable organization and getting the tax-exempt status is much easier. Gifts to private foundations are deductible, though there are some income limitation requirements amounts that can’t be deducted in the first year that can be carried forward to future years.

Our clients come from many diverse backgrounds and situations; some have estate plans already prepared while some others might be struggling in the current economy.

Maybe you don’t have the resources of someone like Mr. Zari to create your own private foundation. We had another client who had much less money but, when he passed away, he left all of it to the Art Institute. It turned out to be a very significant amount for him. Others have given money to organizations like community foundations and created long lasting endowment funds. These gifts to endowment funds into private foundations again can benefit you now from a tax standpoint, but also benefit the donees and organizations for years to come.

There are three benefits that come to mind when thinking about making gifts to a private foundation or endowment fund.

First, they enable you to make impactful gifts that can provide funding for scholars and favorite charities.

Second, this is something that could be for your family. When you’re gone, your children can take on running the foundation and they can continue to make decisions on your behalf. Maybe they will make gifts to charities that they feel strongly about.

Third, of course, let’s not forget that private foundations and endowment funds can create great tax savings not only in the year that you make the gift, but they can also reduce your estate taxes.

These three things put together, it seems to me, create really strong reasons to want to consider this strategy for someone with wealth. Tax planning and charitable giving are naturally very personal decisions. If you did want to set up a private foundation or make a more permanent gift to a charity, we can help you set it up, give you advice on the proper vehicle, and help you with the annual compliance.