THESE DAYS IT'S hip to be charitable. (Source: Smart Money, Wed., July 5, 2006)
In the past few weeks, Bill Gates, Brangelina and most recently, Warren Buffett, have all made worldwide headlines with their generous charitable activities. (Buffett plans to donate $37 billion of his $44 billion empire to charity, he announced this week.)
Perhaps it has you thinking about your own charitable endeavors — and how you'd like to expand them.
So why not create your own charitable trust? Contrary to popular belief, you don't need a net worth that lands you on the Forbes Rich List. In fact, if you have $10,000 that you'd like to give to charity someday, you can invest in a "donor-advised fund," which has the added perks of allowing you to get an immediate tax break and have your account grow tax-free until you're ready to make donations. That's a great deal for those who are charitably-minded.
"You can feel like Mr. Gates, Mr. Buffett, Mr. Rockefeller and all the rest," says Benjamin Pierce, executive director of the Vanguard Charitable Endowment Program.
Most donor-advised funds are associated with major fund families (others work with a specific charity). These funds operate independently, and are registered as 501(c)(3) organizations — nonprofit, tax-exempt — with the IRS. That status enables you to take a tax deduction for your contributions. In many cases, investors fund the account with appreciated securities to avoid a second tax pitfall, capital gains taxes.
Any investment you make is irrevocable, cautions Ann Boyce, president of the T. Rowe Price Program for Charitable Giving. But you decide when and which charity will receive your money. The fund will follow your instructions with few exceptions — say, if you want to make a donation to an organization that isn't a legitimate charity.
Before you pick an investment company, do look carefully at fees, cautions Trent Stamp, president of Charity Navigator, an independent charity evaluator. "You are involving a middle man," he says. "They're going to take a percentage of your gift." Administrative fees are charged on a sliding scale, depending on the size of your account. You'll also pay expense ratios on the funds you invest in.
Contributions to a donor-advised account are invested in fund "pools," based on risk levels. Options vary by program. The Fidelity Charitable Gift Fund offers 11 choices, comprised of funds both within and outside the Fidelity fund family. T. Rowe Price's program, meanwhile, offers five options ranging from a conservative Gift Preservation Pool, which keeps 80% of assets in a money-market fund, to a Growth Pool, which spreads its assets among eight equity funds.
You can keep money in the fund for as long as you'd like — there's no December rush to write out checks and get that deduction. So the account could grow tax-free for decades. You can save up to make a big impact at the nonprofit of your choice, say, endowing a chair at your alma mater. Or you can aim for an even longer-term impact. "You can put in $100,000 now and it gets passed on to your kids and grandkids," says Pierce. "The [insert your name here] fund can go on forever."
Here are the details on donor-advised funds offered by some of the biggest no-load fund families:
| * Administrative fees, which vary by account size. | |
