A How-to Guide For The Serious Giver of trusts, pooled income, and foundations.
The easiest way to give to charity is to write a check. But that may not be the most advantageous way, for you or the charity. Many of the alternatives allow your original gift to grow over time.
Securities. Investors with huge market gains who give away appreciated stock that has been held for at least a year can base their tax deduction on the stock's fair market value without getting socked with the capital gain. If you sell the asset and then give the cash to charity, Uncle Sam wins; giving the security itself avoids this problem.
Gift funds. Donors who want to create their own giving timetable might consider charitable gift funds. Fidelity investments Charitable Gift Fund (800 682-4438) has a minimum initial investment of $10,00; donors decide when the which charities get donations (minimum gift: $250). The fund has attracted more than 10,000 donors with a $1 billion in funds and has given $500 million to more than 50,000 charities. Eighty-five percent of those who contribute to the fund do so by transferring securities. Some banks offer similar funds.
Foundations. No matter which charity you select, once you have made an outright gift, the charity calls the shots. Philanthropists who want to control how their funds will be used can set up their own foundation, but the red tape may be too burdensome for everyone except the very rich. Many new philanthropists are teaming up with community foundations. These benefit a particular geographic area and help make giving more personalized. Over the past 20 years, the El Paso Community Foundation in Texas has established more than 237 individual endowment funds; one example is the Dr. Jaime Martinez Memorial Found for Children's Dental Health Needs. The Council on Foundations, at (202) 466-6512, can provide contact numbers of local foundations.
Trusts. Community foundations and charities can help you design a planned or deferred gift. The most common method is the charitable remainder trust. Assets are transferred to a trust; the trust provides the donor an income for a specified period of time, and the donor gets a partial tax deduction. After the trust's lifetime, the remaining principal goes to the charity. A charitable remainder trust probably doesn't make sense for young people, because annual payouts will likely be low; it might make sense, say, for a married couple both age 50. The charitable lead trust is like a remainder trust in reverse. Assets are placed in a trust and the charity, not the donor, gets the income-but the assets revert to the donor's beneficiary later on. Such trusts are used mostly to pass on assets to future generations.
Other options. Pooled-income funds mix your donating with those of others and invest the assets. You get an annual income stream determined by the fund's rate of return; the charity gets the remaining assets on your death. Another vehicle is the charitable gift annuity, in which a donor transfers property to a charity in exchange for a guaranteed annual income payment.
Choosing a charity can be hard. The Council of Better Business Bureaus' Philanthropic Advisory Service (703 276-0100) the National Charities Information Bureau (800 501-6242), and the American Institute of Philanthropy (301 913-5200) evaluate individual charities and can offer guidance on picking one. For more information, see U.S. News online (http://www.usnews.com).
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