Charitable Giving (11/19/2015)

At this time of the year many people think about charitable giving. The obvious and easiest method is to simply write out a check and send it to the charity of your choice. Another method is to give highly appreciated stock. In this case, you get an enhanced tax break because you get the deduction for the full value of the stock, but you don’t pay the capital gains tax.

Two other methods are discussed less often, likely because they take more planning and thought. They are Donor Advised Funds and Pooled Income Funds. Following is an overview of the differences between these methods.

Donor Advised Funds are set up like your own personal charity. You can contribute money, highly appreciated stock and, in some cases, other appreciated assets into the account. Because it is a Charitable Trust, you get an immediate tax deduction for what you contributed, just like any other charity. The difference is that the money is held in an investment account that you select, to be used for charitable giving in the future. The funds must be used, at an unspecified time in the future, for charities you choose or directed by others you appoint. Another feature is that you can name the account (for example, “The Smith Family Charitable Trust.”) You can “direct” the trustee to send money to a specific charity when you desire. You may like the fact that you can leave the funds in the account and, if you wish, have your children direct the funds, so that they get a good sense of charitable giving themselves. There is no cost to set up the account, but it does take an initial deposit of $10,000, in either cash or stock. The funds can be left for future generations to make contributions, so you do not have to use the funds in the account before you die if you so choose. One last advantage is that you can make your account the beneficiary of all or part of your IRA and avoid the income tax on those funds upon your death.

The Pooled Income Funds are similar in nature. You make a contribution to the charitable account, get an immediate tax write off and choose your investment preference. In this case, you get an income for life for either yourself or jointly with your spouse. Your age and the performance of the account will determine how much income you receive. These factors will also determine the amount of tax write off you will receive (you will not get a tax write off for the entire contribution since you will be getting an income).  When you pass away, money left in the account will be used for charitable purposes. You can set this up so that, at your passing, the money goes directly to a charity(s) and/or you can let others direct when and how the funds should go to charity, either at death or spread out over many years.

The appeal of both of these strategies is to know with certainty that a portion of your income or estate will go to charity. The paperwork is rather simple for both and the result is very satisfying.  If you want more information, please contact me.

Ed Mallon

November 19, 2015