After Retirement 3: Setting Up Your Own Foundation
Markus Muhs - Dec 11, 2020
This is the third in a series of estate planning blog posts, from a subject matter expert.
This week's blog post again comes courtesy my friend and fellow Rotarian Kathy Hawkesworth of the Edmonton Community Foundation. Kathy is a legal professional, former tax advisor, and a past chair of the Edmonton branch of the Society of Trust and Estate Practitioners. She acts as Counsel/Philanthropy Advisor for ECF and presented on her area of expertise at the Rotary District 5370 virtual conference a few months ago in which she called out advisors for not talking enough about this stuff. I agree, we need to have deeper conversations on this, which is why I invited her to contribute this piece.
If you haven't read the first two parts, here are Part 1 and Part 2. Be sure to check out the ECF, at the link above, for some excellent resources on this topic.
Considering how to approach your legacy of caring for organizations and causes important to you involves a very practical question. How do I structure the support I want to give?
One of my colleagues has been known to say that if you want to save the polar bears from global warming, your gift should be made and used right away because the bears won’t wait for a gift to be used over time.
But if you thought —“I have enjoyed the theatre/swimming/Rotary my whole life, and want to continue supporting it in a sustainable way” – there is an old word that is often misunderstood but I believe is really exciting.
That word is “endowment,” and it tends to conjure up visions of the very wealthiest people. The reality is that endowments are far more accessible! In fact, these are what I call “forever funds.”
An endowment is a fund started with a gift. That gift is invested in a way that generates good earnings and growth so that a percentage of the fund can be granted each and every year to support the activities and organizations the donor has chosen, even after the donor’s lifetime. The percentage granted each year might not sound impressive, but over time, the impact is huge. It is also dependable, allowing the recipient organizations to budget and plan long-term.
At Edmonton Community Foundation (ECF), we have more than 1,200 such funds. Some (like the one I created) are built over time to the $10,000 minimum required for the fund to be fully operational. Others are created with very large gifts.
One of these funds was established with a large gift of $100,000 some 27 years ago. No other gifts have ever been made to the fund. It has already granted more than $160,000 to the organization it benefits. Has the fund reduced in value? Not at all, as at our last year-end it had more than doubled in size. That is important too, so that the percentage granted also increases over time (to address inflation). These funds are designed to stand the test of decades and generations. Potentially forever.
The “forever” feature provides a measure of immortality and personal significance for named endowment funds — because these funds can be named by the donor for the donor, friend, loved one or the work they do, and they outlast bricks and mortar.
Endowments come in various sizes and forms and people set them up for the many different purposes mentioned in earlier blog posts. These are our very favorite conversations.
Indeed, some donors choose very flexible funds, where they can continue to make different granting choices each year and are an effective alternative to a private foundation. If created with care and great conversations, we can also ensure that your chosen purposes — your unique legacy — will be protected from being amended by future generations.
Contrary to popular misunderstanding, endowments do NOT require millions to be effective. Thresholds vary from charity to charity.
Edmonton Community Foundation is a great resource for information and conversations about the themes, organizations and initiatives that are of particular interest to you, and I encourage you to reach out to us. There is never any obligation beyond having a conversation, and we are delighted to help you identify the ways in which you want to support your community, locally or globally, and help you find a fit.
Kathy Hawkesworth (LLB, TEP)
Edmonton Community Foundation
Conclusion to the After Retirement series:
Kathy is 100% on the mark in the first post, that we advisors don't have deep enough conversations about legacy planning with our clients. Too often we are fixated on the here and now, or the foreseeable future, but what happens to our wealth after retirement needs to be considered as well.
It might be surprising to many that establishing a type of "foundation" either during or after your life isn't something available only to the super-wealthy, and can be established with as little as $10,000 locally, through the Edmonton Community Foundation, as Kathy mentioned. For clients of CGWM we offer Donor Advised Accounts through Charitable Impact, which allow you to retain the investment direction of such assets with CGWM (at a minimum $25,000), as well as easily transfer securities into from you non-registered accounts as highly tax-efficient "PTS donations" that Kathy outlined in her 2nd post.
In both cases, these personalized "mini foundations" are established through piggy-backing on another charity: ECF or Charitable Impact. Money or securities are donated to said charity and your receive a charitable receipt. While the money will then belong to the charitable trust, you then retain some control as to how it is then directed to other charitable causes. Essentially get your charitable receipts now, annually, or at death—however best suits your long-term financial plan—but have your money provide a benefit potentially forever.
Sign up to our eNewsletter to never miss an update. Reach out to Kathy or Markus if you have any questions or would like to further explore planning your legacy.
Some additional estate planning resources: