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Leading With Charity-Building on a Good Foundation:Part 2

Last month, you saw that there are complexities even in the most common forms of charitable giving. Not surprisingly, the tax rules are confusing. Plus, it can require hard work to accomplish the often-expressed goal of using charitable gifts to build family members’ social and moral values.

For many families, there is a gap between outright gifts to public charities and the use of private foundations. As to the former, you figure out which public charity you want to benefit. Then, you make a gift, get a good feeling, get the tax deduction, and, then, it’s over. Done. Except that the charity will send you a nice letter every year from now on requesting more.

With a private foundation, you make the gift, get a good feeling, get the deduction, and, then, continue to get good feelings as you and the family control the funds and dole out the money over time. I don’t mean to be cynical, but the difference is rather clear. Unfortunately, a private foundation can be costly to create and administer. Deductions for gifts to them are not as generous as for gifts to public charities. Plus, there are tax and legal traps in operating a foundation.

Seems like there should be some happy middle ground. It’s a market niche waiting to be filled! Well, look no further, the niche has been filled. There are easier ways to get at least some of the private foundation’s advantages without the fuss.

A community foundation typically is sponsored by, you guessed it, a local community. It is a public charity as far as the IRS is concerned, so you get the best treatment of your contributions. But, here’s the good part. The foundation puts your contribution into a bookkeeping account separate from other contributors. Periodically, you can tell the foundation to give from “your” fund to charities of your choice. Some larger public charities provide similar separate account opportunities.

The Fidelity Investments Charitable Gift Fund typifies a similar, but relatively new approach to deferring your gift decisions. The big mutual fund group’s management recognized a new profit-making opportunity. They created a public charity and manage its funds for a fee. They market the fund and get people to contribute cash, securities or other property. Fidelity maintains a separate bookkeeping account of your contributions and even invests them in mutual funds that you choose. (Of course, the investments must be in Fidelity managed mutual funds.) From time to time, you designate charitable recipients.

Similar services are offered by National Philanthropic Trust, founded by Pitcairn Trust Company in 1996. The smaller company offers several charitable alternatives, and larger donors can retain investment relationships with their existing asset managers.

You can learn more about the two companies at or at

None of the organizations are legally obligated to follow your contribution recommendations. However, they’re unlikely to bite the hand that feeds them. They’ll have trouble attracting new contributors if they balk at patrons’ reasonable requests.

In each alternative, the donor has the relaxed recordkeeping requirements and more generous income tax deduction rules for gifts to public charities. But, much like a private foundation, you have an indefinite period of time to decide which charity ultimately benefits from your largess. Also, there are fewer restrictions and greater tax benefits from contributing family business stock to the alternatives than to a private foundation. If that happens to be of interest to you, check with your tax advisor.

There’s one hidden catch. A private foundation theoretically can last forever under family control. On the other hand, the bookkeeping accounts at community funds and the National Philanthropic Trust or Fidelity Gift Fund-type alternatives typically will end after the donor’s death. Check the sponsors’ policies if you are concerned about control by the family after you go to that great foundation in the sky.

While reducing income taxes and encouraging appropriate values are two primary reasons for charitable giving, there are ways to gain additional tax advantages by using somewhat more obscure charitable giving techniques. I’ll give you a hint. . .Stay tuned next month for the remainder of the story about leading with charity.




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