Monthly Archives: May 2016

Donor Advised Funds

DONOR-ADVISED FUNDS

A way to give without a great deal of bureaucracy.

Provided by Terri Fassi, CPA, MBA, CDFA

 

So, you’d like to make some major charitable contributions, but you don’t want to create a family foundation – with its paperwork and management commitment and the possibility of squabbles. Is there an alternative?

Yes, there is. You could consider a donor-advised fund.

How does a DAF work? A donor-advised fund is a private fund established to manage charitable donations of individuals, couples, families and institutions. It is sponsored by a 501(c)(3) non-profit organization. The process of gifting through a donor-advised fund works like this.1

  • You find a sponsoring organization offering a donor-advised fund. It could be a community foundation down the street; it could be a major investment firm that has started a non-profit charitable endowment.
  • You make an irrevocable contribution of cash or securities to the fund.
  • You get an immediate tax deduction.
  • The fund invests the cash or securities in an account you create; the assets benefit from tax-free growth.
  • While the fund has legal control over the irrevocable contribution you have made, you (or your representatives) advise the fund where the assets in your account should go and how they should be invested.
  • The fund is the actual grant maker that writes the checks to the charities and nonprofit groups you recommend.1,2

DAFs offer control with flexibility. With these accounts, you don’t have the hassles that come with running a private foundation, and you have the ability to advise that the fund make grants to the charities or nonprofits you think are worthy. (The fund makes the final decisions.)3

The standard tax deduction for donations to a private foundation is 30% of a donor’s AGI. In a donor-advised fund, a donor can make additional cash donations up to 50% of AGI.3

Besides the tax deduction and the satisfaction of helping charities, what also makes donor-advised funds attractive is what you don’t have to do. Since you aren’t creating a private foundation, you don’t have to establish tax-exempt status; you don’t have to form a board that will have fiduciary responsibility and schedule board meetings; you don’t have to pay out at least 5% of asset values for charitable purposes each year; you don’t have to pay set-up fees to attorneys and accountants; you don’t have to file discrete federal and state tax returns annually.3

DAFs are less expensive than private foundations. You may be able to open up an account in a donor-advised fund with as little as $5,000; minimums are usually in the neighborhood of $10,000-25,000. In contrast, it takes at least $1 million to start a private foundation.3

The IRS does watch donor-advised funds. There have been instances of non-profits, donors and families stretching the definition of these funds and accounts. The IRS has cracked down on some that appear to exist mostly to claim undeserved charitable deductions and amass tax-sheltered investment income.1

DAFs & private foundations are not mutually exclusive. In fact, sometimes it may be useful to have both.

For example, a decision might be made to shutter a private foundation. Those assets can be transferred to a donor-advised fund, as it is a qualified public charity. So even though the foundation is gone, the donor who spearheaded it can still go on making charitable gifts.5

Another example: a private foundation may want to make some anonymous grants. A complementary donor-advised fund gives a donor flexibility to decide if donations will or will not be anonymous on a grant-by-grant basis.5

So you might want to take a look at donor-advised funds. If you are looking for a way to make significant charitable contributions without the red tape and stress associated with creating and maintaining a private foundation, then this may be a great alternative.

 

Terri Fassi, CPA, MBA, CDFA  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or terri@fassifinancialnetwork.com.

 

 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – irs.gov/charities/charitable/article/0,,id=182839,00.html [10/24/11]

2 – vanguardcharitable.org/giving/learn_about_our_donor_advised_fund.html [10/28/11]

3 – pgdc.com/pgdc/family-foundations-donor-advised-funds-and-supporting-organizations-alternatives-private-foundations [10/27/11]

4 – montoyaregistry.com/Financial-Market.aspx?financial-market=money-and-happiness&category=29 [10/30/11]

5 – financial-planning.com/news/donor-advised-funds-fidelity-philanthropy-foundation-2670992-1.html [1/19/11]

When a Windfall Comes Your Way

When a Windfall Comes Your Way

What do you do with big money?

 

Provided by Terri Fassi, CPA, MBA, CDFA

    

A first-world problem, and nothing more? Not quite. Getting rich quick can be liberating, but it can also be frustrating. Sudden wealth can help you resolve anxieties about funding your retirement or your children’s college educations, and newfound financial freedom can lead to time freedom – greater opportunity to live and work on your terms.

On the other hand, you’ll pay more taxes, attract more attention and maybe even contend with jealousy or envy from certain friends and relatives. You may deal with grief or stress, as a lump sum may be linked to a death, a divorce or a pension payout decision.

Windfalls don’t always lead to happy endings. Take the example of one Bud Post, who won more than $16 million in the Pennsylvania lottery in 1988. Eighteen years later, he passed away owing more than $1 million after business failures and bad investments. Along the way, his girlfriend successfully sued him for some of the money and his brother hired a hit man to try and take him out, hoping to inherit some of those assets. That weird and tragic example aside, windfalls don’t necessarily breed “old money” either – without long-range vision, one generation’s wealth may not transfer to the next. As the Wall Street Journal mentions, on average 70% of the wealth built by one generation is lost by the next. Two generations later, an average of 90% of it disappears.1,2

So what are some wise steps to take when you receive a windfall? What might you do to keep that money in your life and in your family for years to come?

Keep quiet, if you can. If you aren’t in the spotlight, don’t step into it. Who really needs to know about your newfound wealth besides you and your immediate family? The IRS, the financial professionals who you consult or hire, and your attorney. The list needn’t be much longer, and you may want to limit it at that.

What if you can’t? Winning a lottery prize, selling your company, signing a multiyear deal – when your wealth is publicized, expect friends and strangers to come knocking at your door. Be fair, firm and friendly – and avoid handling the requests yourself. (That first, generous handout may risk opening the floodgate to subsequent handouts). Let your financial team review appeals for loans, business proposals, and pipe dreams.

Yes, your team. If big money comes your way, you need skilled professionals in your corner – a CPA, an attorney and a wealth manager. Ideally your CPA is a tax advisor, your lawyer is an estate planning attorney and your wealth manager pays attention to tax efficiency.

Think in stages. When a big lump sum enhances your financial standing, you need to think about the immediate future, the near future and the decades ahead. Many people celebrate their good fortune when they receive sudden wealth and live in the moment, only to wonder years later where that moment went.

In the immediate future, an infusion of wealth may give you some tax dilemmas; it may also require you to reconsider existing beneficiary designations on IRAs, retirement plans and investment accounts and insurance policies. A will, a trust, an existing estate plan – they may need to be revisited. Resist the temptation to try and grow the newly acquired wealth quickly through aggressive investing.

Now, how about the next few years? What does financial independence (or greater financial freedom) mean for you? How do you want to spend your time? Should you continue in your present career? Should you stick with your business or sell or transfer ownership? What kinds of near-term possibilities could this open up for you? What are the concrete financial steps that could help you defer or reduce taxes in the next few years? How can risk be sensibly managed as some or all of the assets are invested?

Looking further ahead, tax efficiency can potentially make an enormous difference for that lump sum. You may end up with considerably more money (or considerably less) decades from now due to asset location and other tax factors.

Think about doing nothing for a while. Nothing financially momentous, that is. There’s nothing wrong with that. Sudden, impulsive moves with sudden wealth can backfire.

Welcome the positive financial changes, but don’t change yourself. Remaining true to your morals, ethics and beliefs will help you stay grounded. Turning to professionals who know how to capably guide that wealth is just as vital.

 

Terri Fassi, CPA, MBA, CDFA  is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or terri@fassifinancialnetwork.com.

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – money.usnews.com/money/personal-finance/articles/2014/01/24/5-things-to-do-if-you-receive-a-windfall [1/24/14]

2 – tinyurl.com/qblyk6v [3/8/13]