Mutual Funds
Charitable gift funds: smart strategies
graphic December 12, 2001: 8:02 p.m. ET

Tax- and investment-savvy folks can increase donations and decrease taxes.
By Stan Luxenberg
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  • Give in the name of a loved one
  • Give, but beware of scams
  • Make worthy contributions
    NEW YORK (CNN/Money) - Maybe it's the sense of unity we're all feeling after Sept. 11 and the spirit of holiday giving. Or maybe it's just the need for a tax deduction. In any case, cash is pouring into charitable gift funds these days.

    Operated by Fidelity Investments, Vanguard Group and other companies, these funds hold money earmarked for donations. Say you open an account and contribute $10,000. You can direct the fund family to donate the money immediately to a qualified charity of your choice - say $500 a year to your local church. Or you can simply keep the money in one of the family funds until you decide where you want it to go. Either way, you get an immediate tax deduction just as you would with any charitable donation.

    The rush to make donations is not unique to this year. In the first 11 months of 2000, the Vanguard Charitable Endowment Program took in $85.2 million, and then $66.3 million in December alone. Fidelity Gift Trust Fund, which received deposits of $1.2 billion in 2000, reports that about half the year's total arrived in December. This year, the funds say they hope to finish the year with nearly the same inflows.

    In September, there was a flurry of activity as funds collected money earmarked for victims of the terror attacks. Fidelity has disbursed about $7 million for disaster relief.

    Part of what motivates investors to act around Christmas may be the sentiments of the season. But most checks undoubtedly go into the mail to meet year-end tax deadlines. "People tend to do much of their tax planning late in the year," says Ben Pierce, president of the Vanguard Charitable Endowment Program.

    Deposits can range from a minimum of $5,000 at the Calvert Giving Fund to $25,000 at Vanguard. The funds simplify gift giving because the fund companies handle all record keeping. "The funds are extremely convenient, and some of them allow you to make your charitable bequests online," says Ross Levin, president of Accredited Investors, a financial advisory group in Edina, Minn.

    Besides convenience, the charity funds make it possible for investors to book sizable deductions. In a popular strategy, the donor deposits an appreciated security. Say you have 1,000 shares of stock that have risen from $10 a share to $50 (worth $50,000 total). If you sell and donate cash to your favorite charity, you'll incur a huge capital-gains bite. By donating the securities, however, you can take a deduction of $50,000.

    Vanguard's Pierce says two-thirds of his contributions come in the form of appreciated stock. "A lot of the technology stocks may be down lately, but people who have been holding good old blue chips like GE and Pfizer have substantial capital gains, and these can be very effective gifts."

    Another common strategy is to accelerate charitable deductions by using a fund. Say you want to give $2,000 a year to your church over the next 5 years. You could just write a check directly to the church each year, and take the deduction.

    By using a charitable gift fund, you get the potential for the money to grow each year, increasing your gift-giving potential. (Keep in mind, however, that you only get to take the deduction on the initial contribution.)

  • Vanguard Charitable Endowment Program
  • Fidelity Gift Trust Fund
  • Calvert Giving Fund
  • Charles Schwab Charitable Giving Fund
  • T. Rowe Price Program for Charitable Giving
  • Eaton Vance Charitable Gift Trust
    Other companies with charitable funds include Charles Schwab, T. Rowe Price and Eaton Vance. The programs enable investors to invest their donations into a variety of investment options. Selections range from cautious money-market funds to aggressive growth funds. Investors pay an administrative fee - usually, around 0.5 percent on top of the annual expense ratios that the mutual funds normally charge.

    "If you are planning to make a donation in the next year, you may elect a conservative choice, but if you have a long-term program of giving, you may want to put the money into a growth fund that will appreciate," says Ann Boyce, president of T. Rowe Price Program for Charitable Giving. graphic


    Give in the name of a loved one

    Give, but beware of scams

    Make worthy contributions