Gifts and charitable donations can be modelled as Legacy Expenses in the software. This special category of expense ensures the relevant tax credits are calculated for donations to charity (depending on the jurisdiction).
How to input a Legacy Expense:
1. In the Dashboard click/tap the '+' button in the bottom right corner of the screen and then click Expenses:
2. From the list of available options, click Legacy Expense:
3. Complete the Basics data input screen with the relevant details.
- Change the owner dropdown to whoever is making the gift/donation (default is joint).
- In the recipient type dropdown, select the person receiving the gift if they are listed as a person in the plan. If not, select 'person outside of plan'. For donations to charity, select 'charity'.
- In the recipient name field enter a name. This is what will show on reports. If you enter the name as 'children', for example, the report will show the expense as 'Legacy gift to children'.
- In the amount box input the amount of the gift/donation and select the frequency. This should be set to 'annually' for a one-off gift.
- Set the priority level. Basic is the highest priority and Luxury is the lowest priority.
- Set the inflation rate to an appropriate figure. The inflation rate will escalate the figure in the amount box from the start of the plan to when the gift/donation is made. If the amount is a 'future value' set the inflation rate to 0%.
4. Click Timing on the left hand menu. If an event exists for the year when you want the gift/donation to be made, click on the event icon and then click Set as Start Event. If an event doesn't exist yet, double click on the bar of the chart for the year when you want the gift/donation to be made to create a new event. Give it a name and then select Set as Start Event.
5. Next, still in the Timing screen, click on the event at which you want the gift/donation to stop then click Set as End Event. For a recurring gift/donation this would be an event in the future. Again, if one does not exist yet, you can create a new event by double-clicking on the relevant bar of the chart. For a one-off gift/donation, use the same event you used for the start event.
6. Optional step for recurring gifts/donations only: if the recurring gift/donation will increase/decrease in future, you can click Steps on the left hand menu and schedule a future change to the amount of the recurring gift/donation.
Click Add Step. In the Basics screen input the new amount of the gift/donation and set the inflation rate. This will escalate the figure in the amount box from the start of the plan to when the step change is made. If the amount is a 'future value' set the inflation rate to 0%.
Click Timing in the grey bar, click on the event on the timeline at which the change will occur (this must be an event in between and start and end event for the recurring expense). If an event doesn't exist yet, double click on the bar of the chart for the year when you want the gift/donation to change to create a new event. Click Set as Step Timing. Then click Save.
7. Optional step if you wish to specify which account should be used to pay the expense: By default the software will use its usual expense fulfilment logic and use income, then cash, then liquid assets according to the liquidation order in Plan Settings (see further reading below for more detail on this). If you want to over-ride this logic and specify a particular account(s) to be used to pay this expense, click Payment Sources on the left hand menu. Click and drag the account(s) you want the software to use from the Available Payment Sources list to the Preferred Payment Sources list.
Tip: the Only Use Preferred Payment Sources option should be used very sparingly, if at all. When ticked, this setting can create artificial shortfalls if the preferred source is inadequately funded to pay the linked expense. These artificial shortfalls can prevent the software’s Insights from returning results.
When might you tick the “Only Allow…”option? In most cases, we recommend only using this setting in a what-if scenario. For example, your clients want to make a future gift to their children from a particular asset and you want to run a test to determine if they are saving enough to a particular account to cover this. Even if the account is set as a preferred payment source, income and other assets sources will be used if the account does not have the funds to meet the linked expense. However, by selecting the Only Use Preferred Payment Sources option, you could in this scenario test the account for adequate funding. Again, we recommend using this setting sparingly and normally only in scenarios.
8. Click Done.
How to view a Legacy expense:
In the Dashboard or the Let's See screen you should see the black Total Need line has increased in the year(s) of the gift/donation(s). To see more detail, click the Year View button, top right of the chart, move the slider to the year of the gift/donation and click Expenses. Click Expand All to see the payment source for the gift/donation.
How to edit a Legacy expense:
In the Dashboard click Expenses then click the name of the expense you wish to edit.
This will open up the expense item and you can then edit any of the details by clicking on the relevant data input field. See further reading below for more detail on editing items in AdviserGo.