Blogs > Your Money

Dave Patterson and Erin Preston, a father-daughter team of Certified Financial Planner® licensees, provide thoughts and suggestions on a broad collection of personal finance topics.  Information provided in this BLOG is intended to be of a general nature and may not be appropriate for all situations.  Readers should consult with their own financial advisors before relying on any information contained herein.

Tuesday, December 8, 2009

A Better Way to Give

At this time of year, our thoughts turn to giving, both to our loved ones and to the needy. Most people give cash or write checks to their favorite charities. While their gifts are tax deductible, they are using after-tax dollars to make their gifts. There’s a better way, we believe.

A number of investment management companies offer tools to help make gifting easier and at the same time maximize the funds available through asset management and tax savings. For example, Fidelity Investments, The Vanguard Group, Inc. and Charles Schwab and Co., Inc., all administer what are called donor-advised funds. Since they are all similar in how they function, we are providing a general description in order to explain how they work and what the benefits are. They are independent 501(C)(3) public charities that administer donors’ charitable gifts.

Investors can open charitable gift fund accounts and easily transfer cash and securities to the accounts. Once transferred, the gifts are irrevocable and qualify for a tax deduction in the year of transfer (with some limitations). If a stock is transferred, it is immediately sold by the gift fund managers. Any gains on securities transferred avoid taxation. Therefore, assets with large capital gains tax liabilities allow individuals to give more by avoiding the potential capital gains taxes.

Donors decide how the assets they have gifted are to be invested. A number of investment “pools” are typically available in which to place the donated funds. Some are more aggressive than others; some focus on capital growth; some focus on income. The donor can decide how aggressive he or she wants to be. With professional management, donors have the possibility of seeing their accounts grow, providing the possibility of increasing the amount they can give to charities.

Accounts must first be funded with a minimum investment amount, which is usually between $5,000 and $10,000. After opening the account, gifts can be granted to the donee (This can be done online). Minimum grants are usually $50 to $100. Gifts must be made to IRS qualified public U.S. charities.

A gift fund provides a way to reduce taxes in a year of unusually high-expected income. By bunching several years of gifts together, one can meet the gift fund minimum and receive a tax deduction for the total amount gifted in one year. The funds gifted can then grow tax free in the gift fund account and then be distributed to charities over the following years.

In summary, charitable gift funds provide a better way to gift and at the same time maximize the amount of gifts you can give to your favorite charities.


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