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Charitable gift funds

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Update: The Wall Street Journal just ran an informative article about donating appreciated stock. The article is for subscribers only; current clients can request a copy from us.

Update 2: Fidelity has published a lengthy research report [Fidelity Gifting Appreciated Securitiespdf] on gifting appreciated securities in lieu of cash.

Charitable gift funds offer a really easy and IRS subsidized way for people with appreciated assets to give money away. They make giving money away cheap and easy. What’s not to love?

Here’s the concept:

1) You donate your appreciated asset to XYZ Charitable Gift Fund.

2) You get an immediate tax deduction for the current market value of what you gave.

3) The Fund sells the asset and puts the proceeds into a gift account in your name. The IRS will not make you pay any tax on the gain.

4) You decide how you want the money in the account invested.

5) At your leisure, you can “suggest” that they donate money to whoever you want. They mail out a check to the charity.

Most large financial institutions now offer have some kind of gift fund. Our clients generally use the Fidelity Charitable Gift Fund. It has been around since 1991 and is the largest one in existence. We have found it straightforward to use.

Some benefits our clients have gotten from participation:

1) All the tax savings of gifting appreciated assets with minimal hassle.** Many organizations are not set up to receive stock and may not even know what to do with it. You can transfer stock once and send cash to multiple organizations.

2) Easier recordkeeping. You only have to keep track of one donation for your taxes, instead of each individual gift.

3) Online giving. Some charities cannot take online donations or get clipped 5-10% by a processing company for online donations. You can go online in the middle of the night and Fidelity will take care of sending the cash without any fees.

4) Putting their money where their mouth is. We all have the best of intention to give x% of our income to charity but we can get busy. If you actually put the money in the fund, you have made an irrevocable decision to give.

5) Timing a gift. You can get a deduction today, even though you may intend to give the money to the end recipients over the next several years.

There are, as always, caveats that apply.

The one that most often trips people up is that you cannot fulfill a pledge you personally have made with money from a gift fund. Instead of pledging money, you want to state that you will suggest a gift from your charitable fund. This will makes the IRS happy as well as the director of development.

There are some other issues to be aware of. Based on your particular tax situation, you may not get the full writeoff. You only want to give securities you have owned for more than a year. There are some restrictions on the gifts that can be made. Your employer may not match gifts to funds. Etc etc.

If you are a client and are reading this because we told you that a charitable gift fund might make sense for you and you agree, give us a call.

If you are not a client, do your own homework or talk to your financial planner.

**The tax savings can be huge. Some of our California AMT payers with zero basis stock are able to give $10,000 worth of stock, get a $4,430 deduction and avoid $3,130 in capital gains taxes.

Topics: Appreciated Stock, Charitable gift planning, Financial Planning | No Comments »


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