Legacy Advised Funds: Finally, here’s something about “LAF” | Thompson Coburn LLP


The global pandemic probably made us laugh less. What has also probably been true about the pandemic for many, and is certainly true for me, is that I cleaned my house from top to bottom, discovering some nostalgic things. One of those things I found was the first research paper I wrote in high school titled “Laughter: It’s More Than ‘Ha-Ha’. My 14-page “masterpiece” concludes that laughter is extremely beneficial for our health. The eight benefits of laughter [1] listed in the conclusion of my tenth grade work still resonate with me in 2021, in particular the following: “Laughter enables humanity to deceive the present in the same way that time can obscure a past tragedy or the ‘hope can light up the future’.

Considering the benefits of laughter, I am delighted to present the LAF to you. An Alumni Advised Fund is a variation of a Donor Advised Fund (“DAF”). A DAF is an account with a public charity, typically a community foundation or the charitable arm of a large financial institution such as Fidelity or Schwab (“DAF Sponsor”). The DAF sponsor manages the administration of the account and the donor retains the ability to direct the investment of funds in the account and recommend any charitable grants that the sponsor wishes to grant. Most DAF sponsors, especially community foundations, will also sponsor LAFs. The main difference between an LAF and a DAF is that the person (s) who establish the charitable account during their lifetime (“Donor”) allocate assets to the LAF which will be distributed to the sponsor of the LAF after the death of the Donor. Therefore, although the donor can never recommend LAF grants, the donor may nominate others to recommend LAF grants once the LAF has been funded.

Before the pandemic began, Congress passed the SECURE Act (“Act”). The law has significantly altered the ability of those who inherit IRAs and other qualified retirement plans (“IRAs”) to extend the distributions required from these IRAs. Those who you give your IRA to when you die now can pay more income tax over a shorter period of time.

If you are inclined towards charity, the LAF is a tool you should consider as it can allow you to permanently avoid tax on the deferred income remaining in your IRAs upon your death while simultaneously benefiting your loved ones and loved ones. to non-profit organizations supporting causes your loved one is passionate about.

LAFs, similar to DAFs, offer various strategies for tax savings and charitable giving. While you don’t get any income tax deduction with an FAL, if you, as the owner of the IRA, name an FAL as the beneficiary of your IRA, you can:

  1. Provide a charitable bucket or buckets of funds for your family and friends. The full amount donated to the LAF is available for the LAF advisor (s) to grant to their preferred nonprofit organization (s). You can create an LAF for your family to distribute among common favorite nonprofits (a “LAF Pot”). You can create an LAF for each of your children and grandchildren to divide among their specific and unique favorite nonprofits. You can create both an LAF Pot and individual LAFs. The choice is yours based on your financial and family situation.
  2. Plan for a rich child without subjecting inherited assets to income or inheritance tax. Often, parents want to give to their children as well. If one of their children will have a taxable estate (“rich child”) and their other children will not, one solution is for parents to designate IRAs at an LAF in an amount equal to the share of the family. the rich child. Wealthy Child is appointed as adviser to LAF. The rich kid gets an inheritance (although the rich kid eventually has to donate the money to nonprofits, but how wonderful it is to have the money available to donate to causes that one finds personally worthy?) Patrimony of the child.

Estate planning professionals advise our clients to regularly review and update their estate plans. Of course, your revocable trust, will, and powers of attorney come to mind first. In fact, the documents that make up your estate plan must be accurate and up to date with the tax laws in force and your family and financial situation. But just as important is a review of the assets you own and how those assets are titled or will be transferred upon your death. Each review of your estate plan should include identifying your assets that have beneficiary designations and confirming that those designations match the estate plan created by your trusts, revocable or not, and your will. Likewise, if you currently own a CFO, have you considered whether your CFO succession or disposition plan is still appropriate? Remember that when you originally created the CFO, you indicated whether upon your death (1) the assets of the CFO will be distributed to one or more nonprofit organizations of your choice or (2) designated successor advisors will pay DAF grants for you. If you have appointed successor advisers, the DAF will essentially become an LAF once you die or are unable to recommend grants from the charity fund. If you have a DAF who is going to become a LAF, you should discuss the DAF / LAF with the successor advisors in order to prepare them for their future responsibilities.

As noted, an LAF does not offer any current tax benefit to the donor. At present, it is not clear if income taxes will be higher in 2022, this could be the case. If you decide to accelerate income in 2021 to avoid this higher potential tax and want an offsetting charitable deduction, then you should consider setting up and funding a DAF or charitable remainder trust before the end of the year. .

In short, laughter and LAF are good for us humans. I recommend that more of each be caused and created. It’s time to laugh and LAF and laugh.

[1] Here are the remaining seven points: 1. Laughter benefits the lungs and various other internal organs. 2. Laughter clears the respiratory system. 3. Laughter provides a healthy emotional outlet. 4. Laughter offers an opportunity to release unwanted energy. 5. Laughter fights boredom. 6. Laughter relieves social constipation. 7. Laughter helps fight shyness, tension and worry.

About Wanda Reilly

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