Are Charitable Gift Accounts Right for You? Charitable gift accounts may be a good idea for individuals looking for a tax-advantaged way to support their favorite charities, improve their estate tax situation or bring more order to their gift-giving strategy. These are not necessarily inventions for the rich – some of these accounts can start with an initial contribution of $10,000 and allow additional contributions of as little as $1,000.

Charitable gift accounts offered by financial institutions come in two varieties -- donor-advised funds or pooled-income funds. Donor-advised funds allow a donor to deposit a specific amount in the fund, take an immediate tax deduction up to the full value of the contribution, select investments among the choices provided by the investment company and then recommend which charities will receive money from the account over time. Pooled-income funds, meanwhile, pay the donors a fixed income for life from the fund. The balance of the account is paid to the donor’s designated charities after the last designated income beneficiary dies.

Depending on a donor’s particular situation, these two options can be an attractive idea depending on whether the donor’s focus is maximum tax deduction or income for life. That’s why it’s a good idea to discuss either option with a trusted financial adviser such as a CERTIFIED FINANCIAL PLANNER® professional or a trained tax advisor to see if either of these or other tax advantaged charitable options are right for you.

Some general points about these options:

Know the kinds of assets you can deposit: Most funds will allow you to deposit cash (by check), publicly traded stocks, bonds and mutual fund shares and, in some cases, life insurance policies. Your tax deduction will depend on the type of asset you donate. Gifts of cash are limited to 50% of your adjusted gross income while gifts of stock are limited to 30% of AGI. Unused charitable deductions in one year may be deductible within the following five tax years.

You can reduce the overall size of your estate: In 2009, the federal estate tax exclusion amount is scheduled to be $3.5 million, but federal estate taxes are will be repealed in 2010 for one year only. Unless Congress enacts new laws, the estate tax exclusion will be re-set to $1 million in 2011. No one can know the future, but for taxpayers with significant estates, charitable gift funds might be a good way to reduce the size of a taxable estate.

You need to keep an eye on fees: Always consider management fees when considering any potential benefits. You will probably be paying higher fees than the average index investment or similar pooled investment. The organization that offers the charitable gift account handles any legal, administrative, and filing requirements (including tax returns). These costs are factored into the fees. However, because the charitable gift account is administered as part of a larger organization, the fees are generally lower than those incurred by a family foundation.

This decision is irrevocable: Understand that your gift is final. Because of the tax-advantaged treatment, you’re not going to be able to reverse this decision if you find you need the money later. Give careful consideration to how prepared you are for retirement and long-term care spending before you make this choice.

Watch the IRS: The Pension Protection Act of 2006 mandated the Treasury Department to study donor advised funds and make recommendations to Congress about the tax deductibility of donor contributions and the donor’s ability to make recommendations as to which charities will benefit and when.

Labels: Charitable gifts, fees, Financial planning

  9:28 AM •  0 Comments •

It’s Wise to Plan for the Unexpected Sometimes the unexpected happens. What if your house and personal possessions suddenly were destroyed by fire, weather or other disaster? How much would your insurance pay?

If you need time to think about it, you probably should address this issue.

Ralph Freibert led a privileged life in an upscale New Orleans neighborhood adjacent to the now famous 17th Street Canal. When the levee broke, he didn't completely understand what was happening or comprehend the magnitude of the growing devastation. Things changed by the minute, and he and his family had to adjust quickly.

Ralph's children relocated to Texas, then Atlanta, and finally to a school in the Northeast. The kids were not allowed to attend school at first because they lost their immunization papers, and there was no place to get copies. The only way the school would allow the children to attend classes was to consider the family as homeless people. He and his wife cried when they heard this news …how quickly their lives had changed.

Natural and man-made disasters, like the hurricane and flooding in New Orleans, can happen anywhere. If you are like most people, you have spent little or no time preparing an emergency plan. The reality is this can happen to you.

How can you prepare for the unexpected? Here are some steps to consider.

■ Review your property and casualty insurance. Read your policy to understand what it does and does not cover. Consider the improvements you have made to the house. What would rebuilding, or replacing items, cost? Is your current coverage enough? Most people find out too late that they failed to increase coverage to keep up with improvements.

■ Find a knowledgeable insurance agent. Have you ever met your property casualty agent? Many people think their agent will give them the best coverage. Unfortunately, as in any profession, there are insurance agents with whom you really don't want to deal. Find one who is knowledgeable, proactive and ethical, and will always place you and your family's interests first.

■ Make sure you have enough savings reserves. “Three months of monthly expenses is not enough  have at least six months,” says Freibert. "Many places only accept cash; you would be surprised how fast you can spend it."

■ Inventory all your assets and property. Sit down and make a list of everything in each room: furniture, carpeting, light fixtures, window coverings, appliances, personal items, paintings etc. Better yet, go through each room with a video camera and record a narrative. Keep the tape in a secure location outside of your home.

Also, consider storing important documents including wills, tax returns, birth certificates and immunization records “inside” an online vault. The right service will allow you to access these documents immediately, and most importantly, will have sophisticated security systems to alleviate concerns that others could obtain access to your confidential information

Fortunately, Ralph kept great records, stored them outside his home, and fared better than most of his neighbors. Still, he could and would have purchased additional flood coverage if he had known about that option. In retrospect, the move would have saved him a substantial amount of money.

Before Hurricane Katrina, Ralph, like many people, was never satisfied or really appreciated the things he owned or accomplished. After Katrina, he and his family and many others have had to rethink their entire life plan.

Sometimes the unexpected happens.

Labels: Financial planning

  4:59 PM •  0 Comments •