A dear client of Oak Partners passed away late last year and my team has been assisting with her trust administration process. The client was a smart and patient investor and had been able to use a variety of financial instruments to create a wonderful legacy for her family.
As the estate and trust administration progressed the client’s daughter, who had taken over the duties of serving as trustee, came to the decision that her mother’s lifetime financial success could also be used to benefit organizations and causes that had made a difference in the life of her family over the years. She determined an amount she wanted to gift to a certain cause and turned to my team for advice on how to engineer this process.
We reviewed her mother’s assets and determined that while we did not anticipate a large amount of taxes to be due from her trust and estate, one tax deferred account in particular was going to be heavily taxed when funds were withdrawn.
The tax deferred account also roughly coincided with the desired gift amount and so we suggested this account be used to benefit the charitable organization she had determined would receive the gift. We determined if handled correctly, using this account would enable us to save about 30% of the account value in income taxes. She liked the idea, and we began working on how to accomplish this goal.
After some contemplation, instead of an outright gift of the entire account, the client’s daughter decided if possible she would like to make a gift in 2020 that could make a material difference in the finances of the charitable organization immediately, but she also wanted to provide a lasting fund to benefit the cause over time, honoring her mother’s legacy and keeping her memory alive within the organization. These ideas, while honorable in nature, complicated the situation slightly so we set out to figure out a way to meet these objectives.
Together with her estate attorney we explored the idea of setting up a foundation in her mother’s name, but as the details of this process emerged, the cost and on-going effort required to administrate a foundation began to make this idea appear prohibitive. We needed another option, which we found at the Porter County Community Foundation.
With the family, I met with Bill at the Foundation to describe our tax and financial planning intentions and the client’s desires to benefit a particular organization over time in her mother’s name. In response Bill educated the family on the process of using an endowment to accomplish the client’s planning goals.
Our firm would work with the trustee to transfer ownership of the tax deferred account to the Porter County Community Foundation. After the transfer was made, the foundation would withdraw the funds from the tax deferred account. Because the foundation itself is a non-taxed charitable entity, when the foundation withdraws the taxable gains in the account, no taxes will be payable, enabling the full account value to benefit the charitable cause.
After the account was transferred and liquidated, the client’s daughter would work with the receiving organization to determine an amount to gift to the charity immediately, and the remaining funds would be deposited in an endowment created in her mother’s name. Every year, starting in year two, the endowment would distribute a check in the name of her mother’s endowment to be delivered to the charity by the daughter.
The Porter County Community Foundation would invest the funds with a long-term focus, which would likely serve to keep the mother’s legacy intact over time.
The client’s daughter was very satisfied by the answers presented by Bill, and as a planner, I was impressed by the options and process as well. While I have had involvement with various community foundations around the region over the years, this was the first time I have worked with Porter County Community Foundation in a client planning process. These organizations are true assets to our Northwest Indiana communities and I am grateful for the solutions and service they provide.
The Porter County Community Foundation, Oak Partners and LPL Financial are separate entities and are not affiliated.
Opinions are solely the writer's and are for general information only and are not intended to provide specific advice or recommendations for any individual. Stock investing involves risk, including loss of principal. Marc Ruiz is a wealth advisor and partner with Oak Partners and a registered representative of LPL Financial. Contact Marc at marc.ruiz@oakpartners.com.
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