Monday, November 13, 2006

Personal Legacy: An Issue of Timing

Besides values and vision, there is another area of beliefs or expectations that impact one's legacy planning. It's the issue of


When should the funds God has entrusted to us be passed along . . . and to whom?

We have been challenged to consider whether we should "dump" large sums of money on agencies now, or whether we should, rather, "trickle" them out a bit at a time: put them in a foundation, for example, and distribute five to eight percent of the principal each year, with the expectation that the principal will grow at a rate faster than the distributions. . . .

In favor of the former idea, Sarita and I look at the following:
  • We know certain opportunities are available right now . . .
  • A well-managed non-profit agency that requests a certain level of funding should be able to direct our funds to those opportunity uses right now.
  • It is quite possible the opportunities available today will not be available next year or five years from now.
  • Just because you have money in a bank or investment account today does not mean it will be available tomorrow: look at what happened between 1999 and 2002!
  • By giving today, we can reduce the size of our estate. Such a move could produce the following (potentially) positive effects:

    • It would eliminate some of the estate tax that could be due upon our deaths.
    • It would reduce the quantity of money that would go--potentially dangerously--to our children and/or grandchildren.

In favor of the latter idea, some of our financial advisors propose the following:
  • Non-profit agencies are often hopelessly inefficient and inept and cannot deal effectively with large gifts.
  • Most agencies would prefer a steady stream of income than a single large gift.
  • It is almost always better for an agency to have a thousand $100/year donors than to have a single $100,000/year donor. One needs to beware of overwhelming an agency (even as one needs to beware of overwhelming a local church or one's children!) with one's largesse.
  • A relatively modest sum of money well-invested today--in a form of life insurance, for example, or some other investment vehicle--can pay huge dividends to the designated charity later on.

There are additional considerations one must take into account. Just one example (speaking to some of the legacy planning tools I have seen touted): One doesn't want, necessarily, to create an endowment for an organization: as has been seen so many times in the past, an organization's vision and purpose can drift, so that what you intended by your gift today could become non-operable tomorrow. The organization may stop providing the service for which you endowed it! Thus, for example, if you invest in a life insurance policy or a charitable remainder trust, you may want to leave the final recipient undefined . . . just in case the organization you admire today becomes something different tomorrow (and before you die).

But even that point seems to indicate in favor of gifting today rather than "storing funds up"--in a foundation or in a life insurance policy, charitable remainder trust, or other vehicle--for distribution over time and/or in the future.

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