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.

Friday, December 24, 2010

Give Your Children the Experience of Giving

We’ve written more than once about a new way to give that maximizes your gift giving: “A Better Way to Give”, December 8, 2009. In that blog we discussed what are called Donor-advised funds. Many investment management firms such as Fidelity, Charles Schwab & Company, Inc. and The Vanguard Group offer such funds. In our blog, we explained what they are and how they work:

“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.”

We noted that 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.

So what does all this have to do with giving your children the chance to experience giving? At least one gift fund allows you to give the gift of giving to others. The Fidelity Charitable Gift Fund, for example, allows you to give a “Gift4Giving” gift to whoever you please. Fidelity then sends them an email with a link to the gift fund website that allows them to designate the charity to receive the money you allocated to their “Gift4Giving”.

The Gift4Giving feature is a great way to help your children or grandchildren (or anyone else for that matter) experience the satisfaction of helping others when their resources are constrained. It’s a great way to set an example for your heirs that hopefully they will continue when you’re gone.


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