Intergenerational Giver

Winston Churchill famously said, “We make a living by what we get, we make a life by what we give.”

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Your legacy involves modeling a lifestyle of charitable giving that you pass on from one generation to another. WaterStone offers a wide variety of tools that allow you to pass your generous values, and potentially wealth, to your children and grandchildren. Among these are:

Giving Fund

TRAINING WHEELS FOR THE NEXT GENERATION - A WaterStone Giving Fund provides the simplest solution for training the next generation of givers. Many families allocate a portion of their fund for their children or grandchildren to suggest distributions. Two simple methods frequently employed:

  1. Encourage children to bring their grant requests to an annual family meeting. The children and grandchildren bring their suggested charities to the family for consideration. The family vets the requests and mom and dad ultimately decide which needs are most deserving and fund them from the Giving Fund.
  2. Create a matching component in your Giving Fund to encourage your children to have skin in the game. The level of the match from the Giving Fund can be dollar for dollar, 2:1, 5:1 or even 10:1. Provided the charities the child supports meet Mom and Dad’s approval and are within WaterStone’s guidelines, the Giving Fund can distribute a matching gift to the child’s favorite charity empowering the child to truly make a difference by giving.

Impact Funds

MORE BENEFITS THAN A PRIVATE FOUNDATION - For those families with a giving estate greater than $2M, a WaterStone Impact Fund provides substantially more benefits than a private foundation with arguably greater control. The Impact Fund has a separate board of directors made up of family members, outside advisors and WaterStone. Family members cannot make up a majority of the board and WaterStone must appoint greater than half of the board. The Impact Fund will file its own articles of incorporation which will contain WaterStone’s statement of faith. This structure gives confidence and control to the patriarch and matriarch that the values on which the foundation was established will not be overturned by future generations – like so many well known private foundations – and that giving by future generations will not support missions antithetical to those values.

Children may hold board seats or serve on board subcommittees to vet grant requests or suggest investment strategy, however family members may not be paid by the Impact Fund.

Advantages of the Impact Fund over private foundations include:

  • Greater tax deductibility – for cash gifts, 50% of Adjusted Gross Income (AGI) vs 30% of AGI with private foundations
  • Fair market value vs. cost basis deduction on assets such as closely held stock and real estate.
  • Full compliance at lower cost than hiring outside counsel because WaterStone oversees all transactions as well as the annual audit and IRS form 990 filing.

Charitable Lead Trust

WEALTH TRANSFER WITHOUT ESTATE TAXES - Families interested in intergenerational wealth transfer coupled with current giving may benefit from a Charitable Lead Trust. Income earned by the assets during the term of the trust goes to the family Giving Fund. At the end of the term, trust assets pass freely to the next generation while avoiding estate taxes. For those facing estate tax exposure, it is a powerful planning tool.

There are two types of CLTs:

In a non-grantor CLT, the trust receives an unlimited income tax charitable deduction for payments to charitable organizations from gross income. However, the giver will not receive an income tax deduction upon the contribution to the trust.

If an immediate income tax deduction is desired, a grantor CLT may be considered. A grantor CLT is especially effective when the giver has an unusually large income in a particular year. As with all WaterStone CLTs, the income from the trust is paid to the giver’s WaterStone Giving Fund throughout the term of the trust. The value of this charitable interest produces a charitable tax deduction in the year of the gift. Income paid to the Giving Fund throughout the term of the trust is taxable to the giver in the year the income is earned.

In both grantor and non-grantor CLTs, the principal passes to heirs at the end of the trust term, thus maximizing generosity during life and enabling the asset to remain in the family exempt from estate tax.