I’ll be honest: the first time “legacy planning” came up in conversation, I wasn’t even sure what the phrase meant.

I was casually chatting with a friend and shared some of my passions for personal finance, stewardship, and interpersonal communication. She immediately put those things together and put a completely new career path on my radar. She started to rattle off a few legacy planning concepts, and to my surprise, they weren’t as foreign to me as I initially thought.

I had an entry-level understanding of some of the things she mentioned. My family had spent some time working with donor advised funds in the past. I had heard of things like charitable trusts, sure. I just didn’t know that it was a specific profession or area of focus for people. I just knew I was excited for our next conversation.

It was then that I learned how Apex Legacy Consultants meets with donors one-on-one to help them organize their assets, articulate what kind of legacy they want to leave, and make the most thoughtful and tax-effective plan. In 20 years, Apex has helped donors give away half a billion (yes, with a B) dollars to causes and charities they care about. That’s pretty cool. And it sounded like it aligned perfectly with who I wanted to be and the kind of work I wanted to do.

As I prepared to join the Apex team as a Legacy Planning Counselor, I studied for my certification and tried to learn as much as I could. Along the way, there were some surprises. That brings us to today. Here’s what I’ve learned:

1. Why do charitable deductions even exist?

I always knew that the government allowed for deductions for charitable contributions, but I realized that I never truly understood why they existed. The government relies on tax revenue to pay for things such as public roads, services, social programs, and while the debate on taxes is perpetual, I wondered why they would create an avenue for people to pay LESS in tax just because they give to organizations that “do good.”

Congress introduced the idea of a charitable deduction in 1917 partially because of the wide recognition of the public good that charities do for society. Essentially, nonprofits provide services and value to the public that the government is either not able to provide, or can’t do as well. Enabling nonprofits to provide these services, through public support, reduces the cost the government would need to pay to provide these services, hence the deduction.

2. 60% of Americans don’t have wills. 

One of the first and most surprising facts that I learned on my journey was just how many people have not considered what’ll happen with their estate after they’re gone. With the advent of COVID-19, there was an understandable uptick in adults setting up estate plans. But there are still around 60% of adult Americans that don’t have one set up. Most just “haven’t gotten around to it yet,” which is understandable. But I also think many don’t understand why it is so important. Check out my article on what happens when you die without one. (And then get started on yours, if you haven’t already!)

3. There can still be tax consequences in your estate, even if it is modest in size. 

I always assumed that estate taxes were only for very large estates. Turns out I was right…kind of.  There’s a blanket “Estate Tax” on estates over $11.7M, and many fall below that threshold. But I learned there are other tax considerations to make, too, especially when dealing with retirement accounts. These are often “pre-tax” assets that are taxed as income when they are withdrawn. So if you inherit one of these accounts, you would be taxed on it when you withdraw, because it would be treated as income. (Depending on your tax bracket, this could mean paying up to 37% in tax on those funds!) People used to avoid this with “stretch IRA” withdrawals: taking a little out every year for the rest of your life would reduce the income tax consequences by keeping you in a lower bracket. But in 2019, the IRA axed that option. There are still some strategies to make the most of these types of assets; my favorite is Charitable Trusts.

4. Donations to foreign nonprofit organizations are not tax-deductible.

That makes sense. Non-US-based nonprofits probably shouldn’t receive a tax benefit from the US government. But did you know that you can give to a US-based nonprofit that does work in another country, and those gifts ARE tax-deductible? Interesting! A quick way to make sure your favorite organization qualifies for tax-deductible gifts is by checking if they identify as a 501(c)3. 

5. Giving cash is NOT the smartest way to give. 

People will get tired of me talking about one of my favorite strategies, the “charitable swap.” The giving of appreciated assets is far more tax-advantageous than writing a check. If you are already giving, why not cut down your capital gains tax while you are at it.

6. The deduction limits for giving is based on income, not how much you give.

I may be the only one who was confused by this at first, but charitable giving of cash is limited to a 60% deduction. I thought that meant that for every dollar you gave, you could deduct 60 cents off your tax burden. Turns out you can deduct dollar-for-dollar, up to 60% of your Adjusted Gross Income (AGI). Most people don’t get anywhere close to giving away half of what they make in a year, so in most cases you can give freely, knowing you’re eligible for the full deduction! Even if you do give more than you can deduct, you are able to carry over the unused deduction for up to five years.

7. Charitable Trusts (exist).

There were a lot of intriguing components around charitable trusts, but once I finally understood how these worked, it was surprising how effective they can be. In most cases you can provide for your heirs/beneficiaries, reduce the tax consequences (even with small estates), AND give more to your favorite organizations. In most cases, you can check all three boxes, so it is SUPER cool to see these be utilized effectively.