It Is Better To Give Than Receive

By Nancy Zambell, Contributing Editor

The holiday season brings out the best in folks, and that includes their generosity.  It’s the time of year for giving, and fortunately for those in need, many people include various charities in their gift planning. According to Giving USA 2007, U.S. charitable giving reached a new record in 2006—an estimated $295.02 billion, a 4.2% increase from the prior year.  And while ‘mega-gifts’ represent 1.3% of the total, some 65% of households with incomes lower than $100,000 give to charity.

According to the report, giving by individuals is always the largest single source of donations, accounting for 75.6% of total gifts and rising 4.4% to an estimated $222.89 billion in 2006.

The U.S. has more than a million 501(c)(3) public charities.  At least nine different types of charities benefit from gifting, but most donations go to religious congregations; arts, culture and humanities organizations; education; gifts to foundations; human services and organizations in the international affairs sub sector.

There are three forms of planned giving in which donors can fund their charitable contributions: private foundations, community foundations and commercial donor-advised funds.

Private foundations, sometimes called family foundations, are the oldest institutions, sporting more than 100 years of organized philanthropy. Today, there are some 70,000 private foundations in the U.S., with approximately $425 billion in assets, and last year, they gave away nearly $25 billion to the nation's charities.

Community foundations are public charities that can trace their history to the founding of the Cleveland Foundation in 1914.  The 700 community foundations in existence today receive and distribute charitable funds within a specific geographic community.  They hold approximately $38.8 billion in assets and gave away $3.2 billion last year.  Community foundations offer a donor-advised fund, which allows donors to set up individual giving accounts that are administered by the charity.

Commercial donor-advised funds, developed by financial institutions, are a more recent invention.  Fidelity Investments created the first commercial donor-advised fund in 1991.  And although most financial institutions offer such a vehicle, Fidelity’s Charitable Gift Fund is still the largest commercial donor-advised fund, with more than $5 billion (out of a total $7 billion) in assets.

Many donors use a Charitable Gift Account as an estate planning tool, as they like their flexibility and potential to reduce or even eliminate estate taxes.  The assets in a Charitable Gift Account are deducted from your taxable estate, reducing your estate for tax purposes.  Furthermore, appreciated assets in the account do not incur capital-gains taxes and are usually eligible for an income-tax deduction at full value.

And usually, these accounts – unlike many planned giving alternatives – have no set-up costs, low ongoing expenses, and very importantly, have no additional taxes assessed.  Many donors employ them in addition to their gifts to a private foundation.  For others, they are an attractive alternative, especially if donors have less than $20 million to give.

The following chart from Charles Schwab’s website helps you compare the advantages of Charitable Gift Accounts with private foundations:

http://schwabcharitable.org/scf/giving/benefits_compare.html

As you can see, for smaller, but still substantial gifts, the Charitable Giving Account offers significant advantages in costs, administration, privacy and especially tax savings.  And they are simple to set-up, requiring no huge outlay for legal and accounting expertise.

But as with all financial matters, it is important to do a little homework prior to committing—as well as conducting periodic reviews to determine if your actions are still in line with your desires.  With that in mind, Schwab advises the following steps:

1. Define Your Charitable Mission by identifying your long-term vision for change and ways you can make a difference.

2. Identify Your Resources and determine what you would like to give in terms of financial assets, time, and skills.

3. Structure Your Giving by implementing a giving plan that fits your financial circumstances and allows you to maximize the impact of your gifts.

4. Focus Your Giving by identifying specific goals for your giving and specific charitable organizations that, with your support, can achieve those goals.

5. Make Use of Available Resources by seeking out information from professionals and organizations that support strategic charitable giving.

6. Measure the Success of Your Giving by evaluating the effectiveness of the charities you have chosen to support and adjust your giving to maximize results toward your mission.

7. Periodically Review Your Mission by considering from time to time whether your mission continues to be the right one for you.

And the best part of all—once you have the business side of the equation completed, you can enjoy knowing that your hard-earned assets will make a real difference in the lives of those less fortunate than you.

Happy giving and investing,

Nancy

This concludes this week's issue of Financially Fit.  We encourage you to visit our website to review past issues of Financially Fit:

http://www.brokeradviser.com/newsletter.cfm

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