The Increase of Crowdfunding in Estate Planning

Crowdfunding seems to be everywhere, but does it have a place in estate planning?  Wikipedia defines crowdfunding as “the practice of funding a project or venture by raising monetary contributions from a large number of people…”  Thus, it seems that in the beginning crowdfunding was a form of venture capitalism with the public at large.  Websites like Kickstarter and GoFundMe allowed for individuals to present an idea and raise capital to get the project off the ground.  However, in relatively recent history, crowdfunding has taken on a prominent role in response to any tragedy.  Now it seems that if there is a sudden illness or death, crowdfunding appears to help defray costs.  But for those both using or donating through a crowdfunding website, there are a few questions to consider.

Are there any tax consequences to a donation? – In general, giving to a fund that benefits an individual is not a taxable gift so long as you stay below certain thresholds.  An individual can give up to $14,000.00 per year to each of any number of different people under current law without incurring any gift tax consequences.  Typically in crowdfunding, the fund is set up and smaller contributions are requested or simply contributions of any amount, big or small, are accepted, so hitting that threshold is not an issue.  Also, keep in mind that your contribution to such a fund is typically not tax deductible.  If the contribution is not to a public charity or other qualified tax-exempt organization, then you are not otherwise allowed to deduct your contribution from your personal income taxes.

Are there fees associated with crowdfunding? –  The answer is it depends on the site being used to support the fund.  Kickstarter applies a 5% fee and then there are processing fees of approximately 3-5% if the campaign is successful.  GoFundMe charges a 5% fee and then approximately an additional 3% processing fee.  The fees are charged against each contribution.  The donor or person contributing is not charged the fees, but the person receiving the funds does not receive 100% of the monies contributed.  Thus, if I give $100 to a GoFundMe fund to help pay for costs associated with the illness of a friend’s child, my friend will only see $92 of my gift.   This reality then begs the question as to whether it is simply better to write a check directly to my friend.  That way my friend receives $100.  Of course the theory behind crowdfunding is that if everyone else is contributing then you will want to do so as well, and therefore, perhaps the fees are worth it if in the end more monies are raised.

How do you determine that the request is legitimate? – You need to be careful that you are going to the actual fund page.  Spoof pages can pop up or emails that look legitimate can arrive in your inbox. You may click through and donate not realizing that you are not donating to the actual cause or person that you intended.  Thus, you should take care to ensure that the URL for the fund that you are using is from a source you know and trust.

Overall, it appears that recently during times of hardship and tragedy, crowdfunding has become a way that people can express their sympathy and/or support for others.  I would expect that any monies received are welcomed and appreciated, but may not be enough.  Furthermore, crowdfunding is not a substitute for financial and estate planning where questions relating to life insurance, disability insurance, retirement assets, fiduciaries, guardianship and the like are discussed and analyzed to ensure that in the event of the unexpected, covering expenses does not create additional stress.  So the question to ask yourself is, what preparations have you made for the unexpected?  #crowdfunding #estateplanning @gofundme @kickstarter @bgnthebgn