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Funds that are charities
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September 10, 1999: 12:22 p.m. ET
Fidelity, Vanguard have a way to avoid capital gains and get a tax break
By Staff Writer Martine Costello
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NEW YORK (CNNfn) - The stock market has made you rich, and now two mutual-fund giants are trying to make it easier for you to be more generous with your cash.
Fidelity Investments and Vanguard Group have charitable gift funds that allow you to donate stocks and funds, avoid any capital gains, and cut your overall tax tab by the value of the securities.
"It's giving at a reasonable level," said Cynthia Egan, president of Fidelity Investments Charitable Gift Fund. "You have tax advantages. And the other part is the administrative simplicity of it."
Here's how it works. The charitable gift funds are registered as non-profit charities. You donate cash, stocks, mutual funds or other securities into a special account in the charitable fund. The charitable fund sells the securities and invests in its own brand of mutual funds -- either Fidelity or Vanguard.
You get to name your account, recommend where the money goes, and you don't have to donate every year so the money can grow over time. Years down the road, you can name somebody else to take over as adviser, so your good cause lives on after you.
The best part is if you have stocks that have soared in value during the roaring bull market, you can avoid paying capital gains taxes, which are 20 percent on assets held longer than 12 months.
The Fidelity fund, launched in 1992, has $1.7 billion in assets and has given away $1.1 billion to charitable causes. It has four "pools" of money that invest in 17 Fidelity funds, including Magellan Fund, New Millennium Fund, and the Spartan Market Index Fund. The minimum investment is $10,000.
The administrative fee for the Fidelity fund is 1 percent a year on a $10,000 investment, which decreases to 0.25 percent depending on the size of the donation, plus management fees for the funds that range from 0.45 percent to 0.72 percent.
The Vanguard fund, started 18 months ago, has $80 million in assets, and has given away $8 million to more than 1,000 charities -- including groups helping refugees in Kosovo and earthquake victims in Turkey, said Ben Pierce, executive director. The minimum investment is $25,000. It has three investing pools that own shares in six funds, including Vanguard Total Stock Market Fund and the Wellington Fund.
"What we try to do is make it easy for people with the financial means and philanthropic interest to give highly-appreciated securities to the program," Pierce said. "A lot of this giving is to very targeted, local charities. It's getting right back on the streets."
Vanguard charges a 0.45 percent a year administrative fee, plus fund management expenses of 0.2 percent a year.
Financial advisers said charitable gift funds are a simple way for an investor to do good work and get a nice tax write-off.
And although the gift funds are non-profit charities that operate separately from the fund companies, it's also a way for the fund giants to generate more fees and lure investors to do all of their money transactions with them, according to financial planners.
"I like it because it makes it simpler for my clients," said Avery Neumark, a certified public accountant and lawyer with the New York firm Rosen Seymour Shapss Martin & Co. "And you have professionals investing the money."
Neumark's clients like it because they have less paperwork and don't have to keep track of receipts, and they don't have to donate every year.
Lou Stanasolovich of Legend Financial Advisors in Pittsburgh said the Fidelity and Vanguard funds can be a simple solution for clients that want to be philanthropic and reap some tax savings. But if they have a bigger pile of money to donate, they might want to consider a charitable remainder trust, he said.
"It's good for smaller amounts, under $50,000," Stanasolovich said of the funds.
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