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.

Wednesday, March 31, 2010

Two “D” Words That Help Maximize Your Charitable Contributions

We’ve written before in our blog (, “A Better Way to Give”, December 8, 2009) about the first “D-word” - donor advised funds. Most large financial brokerage houses administer donor-advised fund accounts. Donor-advised funds 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). 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 aggressively the assets they have gifted are to be invested. With professional management, donors have the possibility of seeing their accounts grow, providing the possibility of increasing the amount they can give to charities. 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 gift fund minimums 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. Often donors feel more comfortable giving larger gifts and more gifts, since the impact on the donor’s finances is no longer a consideration.

The second “D-word” is due diligence. Maximize your giving by making sure your gifts go to quality charitable organizations that effectively utilize your gifts to benefit the intended recipients. Unfortunately, far too few individuals do any research on the organizations to which they are giving.

In a recent article in Bloomberg Business Week titled “Rethinking How To Give” by Amy Feldman, February 8, 2010, Ms. Feldman reviews a number of Internet web sites that evaluate the effectiveness of charitable organizations. She says that one of the most commonly used web sites is Charity Navigator (

“It gives ratings – going from zero to four stars – to nearly 5,500 charities, and its site gets some 4 million page views annually. Those ratings have focused largely on financial yardsticks. For instance, it has given charities high marks for low overhead, but research shows that metric is not as helpful as others in evaluating a nonprofit’s work.”

Therefore, she goes on to say, “Charity Navigator ….. is devising a system that will still go from zero to four stars but will include measures of financial strength, accountability and effectiveness.”

Other sites mentioned in her article were: GiveWell (, GreatNonprofits (, GuideStar (, Partners for Change (, Philanthropedia ( and Root Cause (

In summary, donor-advised funds allow you to accelerate tax saving on the gifts you make and allow your gifted funds to grow tax free. The websites mentioned above will allow you to do your due diligence and help you to better choose charitable organizations that effectively use the funds you give. Utilization of these two tools can help you maximize your charitable donations.


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