Leaving a Legacy of Charitable Giving for Your Children
As parents, we want to be an example for our children and show them that doing a good deed is always good. We can involve our children in our causes and show them that there are those less fortunate than we are and could use our help. It’s satisfying to know that we did our best to help where we could. However, remember that what gives us a sense of satisfaction may be entirely different for our children.
Having our children volunteer alongside us at a food shelf or serving meals at a soup kitchen is a valuable experience that teaches many life lessons, but we won’t be here forever to stand by their side. We want to instill in our children the desire to recognize when something needs doing and to get involved in causes that are meaningful to them.
We do not all have the luxury of the elaborate plan that I will outline, but it can be done on a much smaller scale and allows you and your family to build your charitable legacy.
I had a client with an insurance policy with a significant annual premium. He had purchased the policy when he was younger and had since accumulated a considerable net worth and no longer needed it.
After working with his team of consultants and his financial planner, we determined the course of action and transferred the policy into an Irrevocable Life Insurance Trust (ILIT). An ILIT allows individuals to ensure the benefits from a life insurance policy, avoid estate taxes, and follow the insured’s interests. The policy transfer removed it from his estate if he lived three or more years; otherwise, the value would be pulled back into his estate. The annual exclusion at the time of this transfer was $10,000; he and his wife could use their yearly exclusions to cover the annual premium.
The policy paid an annual dividend, which was used towards the annual premium, reducing the amount needed to contribute to the trust. Our client decided to use the amount that was not required as a contribution to the ILIT to fund that premium payment toward another venture. He established a small account that he hoped would grow over time and used it as a learning tool for two boys, ages 5 and 7. The boys picked two stocks they had heard about and, with his assistance, researched the stocks to determine if they would invest in them.
The brothers thought about their hometown and how money could be used to help someone or something in need. The only caveat from their father is that the cause or recipient had to be important to them. The boys had to research and make a compelling argument as to why they should donate some money to help their identified cause. The boys had to know how the donation would be used and determine if that was important to them. Each year after their due diligence, the brothers would divide the income that had been generated and contribute to the charities that each had chosen. Eventually, they set up a foundation with the boys as members of the board of directors.
We may not all be able to establish our own foundations and allow our children to become a member of the board of directors, but we can apply the same principle to their allowance. They save some, they can spend some, and they can donate a portion to a charity of their choice, not ours. They can complete the same due diligence for a contribution of $20 or $2,000. The process is the same, and the outcome is still rewarding. And you, as a parent, have created a legacy in charitable giving, no matter the monetary scale.