Charitable gift funds How you can help others and your tax bill
I'm guessing I'm not the only one surprised to learn that Fidelity Charitable Gift Fund is the nation's fourth-largest charity.
It's a signal of how successful the philanthropic and financial planning communities have been in creating vehicles that increase incentives for charitable giving and making donating easier.
Fidelity Charitable Gift Fund is what's known as a "donor advised fund." It allows the donor to sock away money today for distribution in the future and to take an immediate tax deduction on the entire amount.
Investors can donate either cash or stocks to the fund. The donation is then invested in one of 13 different investment pools, ranging from conservative to aggressive, where it may grow while the donor decides how to direct his or her charitable contributions.
Donating securities — especially if they're shares you got from your grandmother when you were 20 and they've leaped in value in the 30 years since — also allows the donor to avoid paying taxes on large capital gains. In the case of securities donations, the fund sells the shares and places the money into the investment pool chosen by the giver.
"What you may have is, you're approaching year-end, and from an income standpoint, it's been a good year, and you're in a very high tax bracket," said David L. Giunta, president of Fidelity Charitable Gift Fund. "You're philanthropically inclined. You know you want to give away money. It's a great time to give, but you may not be sure of all the organizations you want to give to. You can have it invested in one of the pools and then make the decisions."
And, since the money may grow between the time you place it in the fund and the time of the gifts, there may be more money to give away.
There are other advantages, too, he said. For instance, if you have appreciated stock to give away, it is easier to give the whole block to the fund in one transaction "instead of trying to divvy 500 shares over different foundations," he said. The charities that received the stock would also have to pay brokerage fees to convert them to cash.
About 77 percent of the contributions Fidelity Charitable Gift Fund has received so far this year are in the form of securities. The minimum gift is $5,000, down from the $10,000 previously required. And the minimum amount for each grant is now $100, down from $250. The fund, which was started in 1991, has about $4.75 billion in assets, and the fund's donors have handed out grants this year that total about $900 million to causes that range from rebuilding bison herds on Indian lands in South Dakota to funding music-education programs in California.
There are other donor-advised funds, including the Schwab Fund for Charitable Giving, and the Vanguard Charitable Endowment Program.
A recent report by Fidelity Investments found that the 83 percent of Americans who donate could benefit by giving appreciated securities instead of cash to charities. Cash is king, though. It accounts for $123 billion of the $166 billion in total gifts in the United States. According to Steven Feinschreiber, senior vice president of the Fidelity Research Institute, a donor who gives $10,000 in appreciated securities instead of cash might realize tax savings worth $449.
Another provision designed to make it easier to donate to charities and other nonprofit groups was contained in last year's Pension Protection Act. It allows individuals aged 701/2 and older, who are required to take money out of their IRAs, 401(k)s and other retirement savings accounts, to give the funds to a nonprofit group without being taxed on the income.
The provision, which is scheduled to expire at the end of the year but appears likely to be extended, would be helpful to people in a number of categories, said Tanya Howe Johnson, president of the National Committee on Planned Giving. Someone who doesn't need the distribution for current expenses and who might be lifted into a higher tax bracket with the proceeds might want to donate the money instead. So too might those who don't itemize and would not be able to reduce taxable income through donations or those who live in states that don't grant a tax break for charitable gifts.
So far, said Howe Johnson, the provision appears to have generated 6,330 gifts totaling just under $112 million.
Walt Gillette, director of individual giving for Washington public radio station WAMU 88.5, said the station has been running about one spot a day reminding listeners that the option is available. The publicity has resulted in some gifts, despite many people's unfamiliarity with the provision. "We're fortunate because we have the radio transmitter to promote it," he said.
Still another vehicle for charitable giving is the charitable gift annuity. It is a variation on the single premium fixed annuities that provide monthly payments for life. Only in this case, instead of giving your lump sum to an insurance company, you give it to a charity or nonprofit group, which provides you with monthly payments. "Does a fixed 7 percent, 8 percent or 9 percent rate of return sound good to you?" That was the pitch in a recent mailing from the District of Columbia's Sibley Memorial Hospital.
While the charity is liable for payments for the lifetime of either one or two individuals, it also gets any earnings beyond those liabilities that result from investing the money and gets whatever is left after you die. In the Sibley example, the payout rates were 8 percent for an 80-year-old buyer and 11.3 percent for buyers 90 or older.
However, don't expect to get a better rate than you would commercially. The American Council on Gift Annuities says the rates it recommends "are lower than, and are not in competition with, any rates offered commercially."
However, there are tax advantages. You are allowed to deduct a portion of what you pay for the annuity equal to the Internal Revenue Service's calculations of what the charity will end up with when you or the beneficiary die. A portion of your periodic payments from your annuity are also exempt.