Stern Advice - Time to buy pumpkins, set charity strategy

Reuters

By Linda Stern

NEW YORK, Oct 23(Reuters) - If you're waiting untilThanksgiving kicks off the season of goodwill, stop waiting.Halloween is a more appropriate time to plan your charitablestrategy for the rest of the year.

That may be especially true in 2013, when sizeable stockmarket gains and new taxes on the wealthy are pushing somepeople to increase their philanthropy and to do so in astrategic way.

Charities are squeezed, and were set back at leasttemporarily when the federal government shutdown stoppedfundraising campaigns in the agencies. Foodbanks and othernonprofits that focus on helping the poor "are overwhelmed withdemand" says Stacy Palmer, editor of the Chronicle ofPhilanthropy.

The trade publication is projecting that the top 400charities in the United States will increase their collectionsonly 1 percent this year; that means they won't even keep upwith inflation.

For donors, there are more reasons to focus this year. Newtaxes on individuals who earn more than $200,000 and jointfilers earning more than $250,000 mean that more people may wantto give gifts that are large enough to keep them below thoselevels. And those who have had a nice run in the stock marketmay have appreciated assets that they can tap to make the mostof their gifts.

Finally, there are significant changes in the way peoplegive and the kinds of organizations they support. United WayWorldwide, while still the single charitable organization thatraises the most in the U.S., "is just treading water," saysPalmer. The organization, which acts as an umbrella organizationthat passes money through to several other groups, raised $2.9billion in 2012, still 16 percent below its 2007 levels.

In its place, smaller charities and personal charitablefunds are picking up increased donations. They all require morelegwork on the part of donors.

So, get an early start and think it through. Here's how tomaximize the impact of your gifts now and through the end of theyear.

- Causes first. The most important part of having a familycharity strategy is deciding what issues you care about most.Don't choose too many, lest you spread your money too thinly andput your address on too many mailing lists. It's optimal to havetwo or three favorites - a medical charity, a school and an artsorganization, for example. Check CharityNavigator.org, to makesure the charities you're considering are well managed and putdonations to good use.

- Give away stock. If you have made sizeable gains on anysecurities this year (in taxable accounts, not counting those intax-advantaged retirement accounts), it makes sense to use themas the gift. Here's why: You can deduct the full value of thesecurities you give away as charitable deductions, but thecharity doesn't have to pay a capital gains tax when it sellsthe shares.

Say, for example, that you own $3,000 of a stock you've heldat least a year and made $1000 on. If you sell it, you'll haveto pay capital gains taxes, typically 15 percent (20 percent fortop bracketeers.)If you sold the shares, you'd owe $150 in taxesand be able to donate (and deduct) a net of $2850 to charity. Ifyou give the charity the shares to sell, they get the full$3,000, and you get the full deduction too.

- Consider a donor advised fund. These are charities, oftenrun by large financial companies that enable donors to lock intheir tax deductions for gifts, amass funds, and then dole themout to individual charities on their own schedule. "They aregoing gangbusters," says Palmer. Fidelity Charitable, forexample, is now the second most popular U.S. charity and raised$3.3 billion in 2012, a gain of 89 percent over the previousyear. Others are run by Charles Schwab Corp., Vanguard and T.Rowe Price Group Inc.

To set up your own donor-advised fund, you can open anaccount with one of those firms and feed it with shares ofstocks or mutual funds. You will get a tax deduction for yourcontributions this year, but can take your time doling the moneyout to the charities of your choice once you've done yourhomework.

- Check out your community foundation. You can also set up adonor advised fund through your local community foundation, orcontribute directly and see your money put to work in your owntown or neighborhood. Ken Nopar, a Chicago consultant who helpsdonors plan their charitable strategies, suggests that peoplewho give local also do on-site visits and volunteer for thecharities they support. It helps cement their connection to theorganization. (Disclosure: I was on the board of my small localcommunity foundation for years, and am a fan.)

- Consider a charitable trust. There are more sophisticatedcharitable vehicles for folks giving away significant amounts ofmoney, notes Carol Kroch, managing director at Wilmington Trustwho counsels affluent clients who may be giving away a milliondollars or more. Charitable trusts can be particularly usefulfor people who have large multi-year taxable gains ininvestments and who need the funds tied up in those securitiesfor retirement income or a bequest. They can set up trusts tobenefit charities and either take interest payments forthemselves or let the charities reap the interest and take theprincipal back as a family bequest later. Set up properly, acharitable trust can be of great benefit to both the donor andthe charity.

View Comments (0)