Tuesday, December 04, 2007

The Samwick Family Fund

Last year at this time, I was scrambling to make charitable donations to all manner of local and national organizations. The year-end scramble comes from the desire to claim the tax deduction for 2007 instead of 2008--the year of delay would reduce the present value of the deduction.

Earlier this year, we made our first gift of appreciated securities to a charitable organization. The VoxWife is having a college reunion next year, and we decided to make a bigger gift than we normally do to commemorate that. Giving appreciated securities generates the same deduction on the individual tax form we file in April as would a gift of cash, but it also eliminates the capital gains tax that we would eventually pay on the sale of those securities. I had a particular stock in my portfolio that I thought was overvalued at the time, and so I would have looked to sell it anyway. So this was a real tax saving.

I thought at the time that it would be nice to have the same opportunity to lessen capital gains tax liability via all of the usual year-end giving, except that the year-end giving tends to be a lot of small donations to a number of organizations. For example, it is time consuming and sometimes infeasible to make a gift of appreciated securities for the few hundred bucks that we send to the United Way each year.

Earlier this fall, I discovered the Fidelity Charitable Gift Fund, and so now that's a possibility. In a nutshell, the CGF is itself a charitable organization, so an irrevocable gift of appreciated securities to it is tax-deductible and avoids the capital gains tax that would occur on a sale. The CGF then allows us to disburse the proceeds in our account to the charitable organizations we like in amounts as small as $100. The CGF invests in Fidelity mutual funds, so the giving capacity continues to grow along with the market.

There are a number of advantages to this setup. It avoids the year-end scramble--we can make one gift to the CGF equal to roughly the total that we want for all of the charities, and then direct the CGF to give to the individual charities at our convenience. It saves on some of the record-keeping for tax purposes--it is just the one gift that we need to track, since the subsequent disbursements from the CGF are not relevant to our tax form. For another summary and some illustrative examples, see this recent story on donor-advised funds from USA Today.


Anonymous said...

We've been using Fidelity's program for quite some time now. It's especially nice if you already have a Fidelity account from which you want to make the securities donation.

It's also been improving somewhat over time - they've added a few more investment options, and very much lowered the minimum payouts (used to be $250, now only $100) and minimum to start up an account (from $10k to $5k).

One additional small benefit you might have overlooked - it allows you to make fully anonymous grants or grants without any address or other contact info attached. That's very nice if you want the tax benefits as well as anonymity, or if you just don't want the charities contacting you incessantly asking for more. There are some charities whose work and mission I love, but whose solicitation behavior I abhor.

I'd like to see them expand the contribution options, though. At the moment, the minimum additional contribution is $1000. I've thought how wonderful this program would be for, say, a couple getting married who'd rather have folks give to the fund on their behalf instead of getting gifts.

Anonymous said...

The only downside I see is the annual fee (60 basis points or $100). But that's probably enough to keep me from doing it.