Category Archives: Charity

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]

Ways the Middle Class Can Make a Difference for Charity

Ways the Middle Class Can Make a Difference for Charity

You don’t need to be wealthy to make an impact and get a win-win.

Provided by Terri Fassi, CPA, MBA, CDFA

Do you have to make a multimillion-dollar gift to a charity to receive immediate or future financial benefits? No. If you’re not yet a millionaire or simply a “millionaire next door,” yet want to give, consider the following options which may bring you immediate or future tax deductions.

Partnership gifts. These gifts are made via long-term arrangements between donors and recipient charities or non-profits, usually with income resulting for the donor and an eventual transfer of the principal to the charity at the donor’s death.

For example, a charitable remainder trust also allows you to pay yourself a dependable income (typically for life) and then distribute the remaining trust principal to charity. A charitable lead trust offers you the potential to reduce gift and estate taxes on assets passing to your heirs by making annual charitable gifts; your beneficiaries get the leftover trust assets at the end of your life or the specified trust term. You could even name a charitable life income arrangement as the beneficiary of your IRA.1,2

If you don’t have enough funds to start one of these, you might opt to invest some of your assets in a pooled income fund offered by a university or charity. Your gifted assets go into a “pool” of assets invested by a fund manager; you get a pro rata share of the income of the fund for life, and when your last income beneficiary passes away, the principal of your gift goes to the school or charity.

If you like the idea of a family foundation but don’t quite have the money and don’t want the bureaucracy, you could consider setting up a donor-advised fund. You make an irrevocable contribution to a third-party fund, realizing an immediate tax deduction; the fund invests the money in an account you create. You advise the fund where the money goes and how it grows, but the fund makes the actual grants to nonprofits.

Lifetime gifts. These are charitable gifts in which the donor retains no powers or other controls over the gift once it is made. A lifetime gift of this sort is not included in what the IRS calls your Gross Estate (but taxable gifts are used in calculation of estate tax).3

Lifetime gifts also include outright gifts of cash or appreciated assets such as stocks or real estate. A gift of appreciated stock could bring you a charitable deduction to lower your income tax, and help you avoid capital gains tax linked to the sale of the appreciated shares.

Through a gift of appreciated property, you can transfer a real estate deed to a school or charity and get around capital gains taxes that may result from a property’s sale. If you have held the appreciated property for at least a year, the gift is deductible up to 30% of adjusted gross income with no capital gains tax on the appreciation. You could even arrange a retained life estate, in which you deed your home to a charity or non-profit while retaining the right to live in it as your primary residence for the rest of your life.4

Estate gifts. These are deferred gifts you make after your lifetime, without impact on your current lifestyle. You can make a bequest to a charity through your will or a living trust without generally incurring estate taxes on the gift amount. A gift of life insurance to a university or charity can give you an immediate income tax deduction for the cash surrender value of a paid-up policy, and possible future deductions. You can also make an IRA gift or retirement plan gift effective upon your death, with the non-profit organization receiving some or all of the assets as you wish.5,6

The caveats. As your income increases, you may face limits on the amount of charitable gifts you can deduct. If you are retired, an increase in income can also cause more of your Social Security benefits to be taxed. The IRS says that your charitable deductions for any tax year cannot be more than more than 50% or your adjusted gross income (possibly 30% or 20% depending on the specifics of your gifts). But if you exceed such limits, the IRS lets you carry forward excess contributions for up to five years.4

Would you like to learn more? Okay, so they may not name a hospital wing or a library after you. But your charitable gifting can have real effect even if you don’t have a fortune. Keep in mind that your unique circumstances need to be weighed before making any decision. As with all tax and estate planning, please consult your financial advisor, attorney or tax advisor to affirm that you are in a position to fully benefit from charitable deductions.

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. 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 www.wellsfargoadvisors.com/financial-services/estate-planning/trusts/charitable-trusts.htm [3/6/13]

2 giving.unc.edu/ccm/groups/public/@giving/@main/documents/content/ccm3_033150.pdf [3/6/13]

3 irs.gov/Businesses/Small-Businesses-&-Self-Employed/Frequently-Asked-Questions-on-Estate-Taxes [3/4/13]

4 www.purdue.edu/giving/fed_tax.html [3/6/13]

5 www.irs.gov/publications/p950/ar01.html [3/6/13]

6 redcrosslegacy.org/GIFTinsurance.php [4/23/12]

 

Understanding the Gift Tax

Understanding the Gift Tax

Most of us will never face taxes related to money or assets we give away.

Provided by Terri Fassi, CPA, MBA, CDFA

 

“How can I avoid the federal gift tax?” If this question is on your mind, you aren’t alone. The good news is that few taxpayers or estates will ever have to pay it.

Misconceptions surround this tax. The IRS sets both a yearly gift tax exclusion amount and a lifetime gift tax exemption amount, and this is where the confusion develops.

Here’s what you have to remember: practically speaking, the federal gift tax is a tax on estates. If it wasn’t in place, the rich could simply give away the bulk of their money or property while living to spare their heirs from inheritance taxes.

Now that you know the reason the federal government established the gift tax, you can see that the lifetime gift tax exclusion matters more than the annual one.

“What percentage of my gifts will be taxed this year?” Many people wrongly assume that if they give a gift exceeding the annual gift tax exclusion, their tax bill will go up next year as a result. Unless the gift is huge, that won’t likely occur.

The IRS has set the annual gift tax exclusion at $14,000 this year. What this means is that you can gift up to $14,000 each to as many individuals as you like in 2015 without having to pay any gift taxes. A married couple may gift up to $28,000 each to an unlimited number of individuals tax-free this year – this is known as a “split gift”. Gifts may be made in cash, stock, collectibles, real estate – just about any form of property with value, as long as you cede ownership and control of it.1

So how are amounts over the $14,000 annual exclusion handled? The excess amounts count against the $5.43 million lifetime gift tax exemption (which is periodically adjusted upward in response to inflation). While you have to file a gift tax return if you make a gift larger than $14,000 in 2015, you owe no gift tax until your total gifts exceed the lifetime exemption.1

“What happens if I go over the lifetime exemption?” If that occurs, then you will pay a 40% gift tax on gifts above the $5.43 million lifetime exemption amount. One exception, though: all gifts that you make to your spouse are tax-free provided he or she is a U.S. citizen. This is known as the marital deduction.1,2

“But aren’t the gift tax and estate tax exemptions linked?” They are. The gift tax exemption and the estate tax exemption are sometimes called the unified credit. So if you have already made taxable lifetime gifts that have used up $4 million of the current $5.43 million unified credit, then only $1.43 million of your estate will be exempt from inheritance taxes if you die in 2015.2

However, the $5.43 million unified credit extended to each of us is portable. That means that if you don’t use all of it up during your lifetime, the unused portion of the credit can pass to your spouse at your death.2

In sum, most estates can make larger gifts during the individual’s life without any estate, gift or income tax consequences. If you have estate planning questions in mind, turn to a legal or financial professional well versed in these matters for answers.

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. 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. 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 – turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/The-Gift-Tax-Made-Simple/INF12127.html [2/24/15]

2 – schwab.com/public/schwab/nn/articles/The-Estate-Tax-and-Lifetime-Gifting [1/28/15]