Give Like a Billionaire
Jennifer Openshaw
12/27/06 - 01:19 PM EST
You've read about the Bill and Melinda Gates Foundation, with their billions (and soon, Warren Buffett's billions) to dole out.
You hear about grants from the Pew Charitable Trust and the Irvine Foundation and uncountable others supporting all types of good deeds.
So you think -- you've done well, and now it's time to do some good yourself. If you're like me, you sit down every holiday and send checks for $20, $50, $100 to individual charities, only to have them spend it to solicit you for more money.
You want to do more good than that. It must feel good for the really wealthy to have their own private foundation. A big tax deduction. Giving away the golden eggs while the charity "goose" is left to grow -- with their name on everything. One phone call decides who gets what, how much and when.
Sounds enticing, but not possible for most of us, right?
Maybe. But there's an alternative, and it's easier than you think. And best yet, it just got easier.
You may want to consider a donor-advised fund. Never heard of it? Here's the skinny.
A donor-advised fund is chartered to manage charitable contributions on behalf of a donor.
They've been around for a long time in the charity world. The sponsoring organization takes a contribution, usually $10,000 or more, and manages it within its charter according to the donor's wishes.
Click here for the video version of this story from Jennifer Openshaw.
The donor receives three tax benefits. There is an immediate income tax deduction for the amount donated. Capital-gains taxes are avoided if the gift is appreciated property or investments, and an individual's estate is reduced by the amount donated.
The sponsoring organization does the paperwork. This is a big deal because foundations are complicated. The donor decides how assets and earnings will be distributed.
What's nice -- the donor can get the tax deduction today and can postpone the giving choice for years.
Investment choices vary among sponsoring organizations. Some may allow the donor's investment advisor to manage the money, while others require the donor to select from the investments offered through the sponsoring organization's program.
Charities and independent sponsors, like FJC (www.fjc.org) or American Endowment Foundation (www.aefonline.org), have long offered donor-advised funds, but annual expenses often exceed 1 percent and required contributions may be $25,000 or higher. And some may not allow the giving flexibility you'd like.
The few premium discount brokers and fund companies have made donor funds more consumer friendly. In October, Fidelity dropped their minimum contribution to $5,000, Schwab, T. Rowe Price and Vanguard offer similar programs but with a $10,000 minimum or more. Management fees run 0.6% and lower with accounts over $500,000.
After the initial contribution, you can contribute when you want to, in amounts as low as $1,000.
Generally you can choose investment allocations, then manage investments though mutual funds. Some, with larger balances, will let you manage yourself or bring your own investment advisor. And most accept real estate and even small business stock as contributions.
You fill out the paperwork once. You tell the sponsor how to invest and where you want the money to go. You decide what's given to whom and when, and how much should be kept aside to grow. Nice. But a word of warning: contributions are irrevocable.
I view these funds as a real opportunity for average investors to become smart donors. From a tax planning perspective, there's no better time than now. Think about setting up your own "foundation" instead of writing those holiday checks. You can avoid paying taxes by donating appreciated stocks or take a writeoff to offset taxes on stocks already sold.
Most of all, you can make yourself feel really good. And a lot of others, too.
