Financial Abundance

Thanksgiving is my favorite holiday.  It is the one holiday that focuses on being grateful for the abundance that we have.  As the year comes to a close, many of us will want to share our abundance with those that are not as fortunate, through our year-end charitable giving.

Did you know that there is a simple, easy and free way to set up your own “charitable foundation?”  This “charitable foundation” can be used to make tax-advantaged gifts to all of your favorite charitable organizations.   If you are planning on making charitable year end gifts to claim a 2011 tax deduction, now is the time to establish your “charitable foundation” by setting up a Donor Advised Fund.

Donor Advised Funds are qualified, private, non-operating foundations that pool their donations and allow you to select your favorite charities for gifts. The gifts that you make can be as little as $50 and can be given to any qualified charitable organization.

You may use a Donor Advised Fund to gift appreciated stock to many charitable organizations.   Giving appreciated long-term capital gain stock to a charitable organization provides a double tax savings.  You receive the full market value of the appreciated stock as a charitable deduction, plus you pay no capital gains taxes on the stock’s appreciated value.

However, giving small amounts of stock directly to multiple organizations can be both cumbersome and time consuming.  Donor Advised Funds solve this problem.  A Donor Advised Fund account can be established at Schwab, Vanguard or Fidelity as well as at many other brokerage firms. Once the account is established, you may donate appreciated long term stock to the account and take the full market value of the stock as a 2011 tax deduction.  If you do not gift the full value of your donated stock during 2011, you still get the full 2011 deduction for the stock’s full value and you may gift the remaining funds at any time in the future.

Let’s look at an example of how a Donor Advised Fund works. Suppose that you bought 50 shares of Apple stock in December 2008 at $100 per share.  You now wish to sell this stock, but you would prefer not to pay the long term capital gains taxes on your profit.

Today, Apple is trading at approximately $370/share. Your $5,000 investment in 2008 is now worth $18,500.  If you donated this stock to your Donor Advised Fund, you would get a 2011 charitable deduction of $18,500.  You would also avoid the requirement of paying capital gains taxes on the $13,500 capital gain.

If you wished to continue to hold Apple, you could gift the stock to your Donor Advised Fund and immediately buy 50 shares of Apple stock.  This approach provides a new cost basis of $18,500.  Since you are gifting the Apple stock and not selling it, the “wash sales” rules do not apply. This approach allows you to increase the basis of your stock while dramatically increasing the after tax value of your charitable gift.

Donor Advised Funds are similar to having your own charitable foundation.  However, charitable foundations have high overhead and legal expenses that make them impractical for most people.  With a Donor Advised Fund, you have your own “mini charitable foundation” with none of the headaches.  If this approach seems appropriate for you, contact your financial adviser today to get your Donor Advised Fund account set up and funded before the end of 2011.