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Charitable fund as estate vehicle
Old 01-21-2007, 05:39 PM   #1
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Charitable fund as estate vehicle

I am currently drafting a document to set up a charitable fund in my family's name. After RE, I can judiciously donate to this in a tax advantaged manner and after I kick the bucket the residue of my estate after specific bequests will roll into it. I can design this so that it supports the causes I am passionate about. For example, I envision a grant competition with specific objectives and criteria and an allocation to specific cost effective charities. After RE I hope to devote some time to this myself. As I am single I am planning to nominate a panel of successor advisors who (a) are younger than me and (b) have the knowledge and expertise to advise the board (my financial institution provides this service). I am not sufficiently wealthy to justify setting up a foundation.

My question is: does anyone on the Board have experience of operating such a charitable fund?
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Re: Charitable fund as estate vehicle
Old 01-21-2007, 08:25 PM   #2
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Re: Charitable fund as estate vehicle

I have investigated doing so but having actually done it. Essentially there are two routes, if you want to give a money to specific instution like a college or large charity (Cancer society etc.) most of them will let you set up a charitable reminder trust (CRT) which will provide you income (~4-5%) in exchange for a large tax deduction up front with institution getting what over is left over after you die.

The other route is to work with one of the major brokerage, Vanguard, Schwab, Fidelity (and probably others.) to set up a donor advisor fund. This gives you an upfront tax deduction and then lets you give money to a charity of your choice each year. I think they offer a fair amount of flexibilty although I am not sure if the grant competition would be covered by them. In case you have looked at them Vanguard offers low fees. http://www.vanguardcharitable.org/


P.S. I suggest you do this before you RE to tax advantage of the larger tax deduction while working.
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Re: Charitable fund as estate vehicle
Old 01-22-2007, 12:03 PM   #3
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Re: Charitable fund as estate vehicle

I use the vanguard charitable trust. Unless you have a huge amount of money, operating your own trust is going to be very expensive... you've got to get attorneys involved to draft the documents and on an ongoing basis to remain compliant with the law. Not to mention paying people to actually administer it.

The vanguard thing is much cheaper... IIRC they charge less than 1% over the usual vanguard fund fees. And they have it all figured out so you don't have to reinvent the wheel.
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Re: Charitable fund as estate vehicle
Old 01-22-2007, 12:50 PM   #4
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Re: Charitable fund as estate vehicle

I believe that you are refering to something along the lines of a charitable remainder trust. You can deduct from your taxes the year the trust is set up for the expected value of the benefit that the charity eventually receives. In the meantime you can enjoy the income that the assets produce and even some of the principal. So yes it just may be a smart move.

There are issues if the IRS thinks that the trust is set up more for your benefit than for the charity. So there are some rules about timing and as to what can and cannot be used out of the trust assets for yourself. This isn't something that I would do without professional help. The downside risk is that the trust is dis-allowed and that a big tax bill comes back to haunt you.
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Re: Charitable fund as estate vehicle
Old 01-22-2007, 04:15 PM   #5
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Re: Charitable fund as estate vehicle

Thanks everyone for the information. Yes, I am getting professional help. No, I will not be dealing with the IRS, nor will I use Vanguard.....because I do not live in the US. Nevertheless, the principles are similar.
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Re: Charitable fund as estate vehicle
Old 01-22-2007, 04:42 PM   #6
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Re: Charitable fund as estate vehicle

i work in fundraising for a non profit and we receive donations from donor advised funds - i have seen them come in from broker/bank accounts (like schwab) as a "donor advised fund" and from local community foundations (not sure if you have those where you are, but usually big metro areas have one or more).

the community foundations offer more in terms of working with you to find good charities that match your interest, whereas not sure how much effort/assistance the bank folks give on that end.
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Re: Charitable fund as estate vehicle
Old 01-22-2007, 06:08 PM   #7
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Re: Charitable fund as estate vehicle

Quote:
Originally Posted by bright eyed
i work in fundraising for a non profit and we receive donations from donor advised funds - i have seen them come in from broker/bank accounts (like schwab) as a "donor advised fund" and from local community foundations (not sure if you have those where you are, but usually big metro areas have one or more).

the community foundations offer more in terms of working with you to find good charities that match your interest, whereas not sure how much effort/assistance the bank folks give on that end.
We do have a strong community foundation. However, the causes I want to support are more global. I am working with my financial institution, which has set up a foundation specifically to support donor advised funds. I can develop a mission and goal statement for my fund and can guide how the funds are to be used while I am alive. I will be writing a will that articulates with this and rolls over the residue of my estate to the fund. I will be naming successor advisors (people with the right skills and expertise that I trust, who are a generation younger than me) to advise the bank folks when I'm not around or are incompetent.

Capital gains on donated securities are now fully tax deductible here. Charitable donations are booming!
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