by Bruce Fenton

The Ultimate Gift by Jim Stovall is not a thick book … and its chapters are short … but it’s very much to the point. It is the story of a rich uncle who leaves a portion of his considerable fortune to a less than over achieving family, while leaving the Ultimate Gift to a spoiled, overindulged grand nephew in whom he places all of his hopes for the future.

Charitable activities are a natural outgrowth of civilization and affluence. Certainly, in our country we see stunning examples of charitable works, whether it is the outpouring of aid to disaster stricken areas, home or abroad, or the incredible amount of wealth donated by the likes of Microsoft® founder Bill Gates and many others like him.

The Gates Foundation, with assets approaching $30 billion, lists one of its main goals as improving health care in developing nations throughout the world. Matching that level of philanthropy is out of the question for most, yet there remain many avenues for charitable works for the rest of us.

The government has provided tax incentives to encourage charitable works. They understand that it is more efficient to allow private enterprise to provide for these needs, than rely on inefficient government resources to provide the similar services.

And that is why the tax laws are structured to support charitable giving … in lieu of profits for invested dollars, those willing to give are rewarded with tax breaks.

Choosing benefactor(s) for organized annual gifting can be difficult, if not downright confusing. A solution is to form a donor-advised fund through a public charity. Many local community organizations as well as a number of mutual funds offer donor-advised funds.

Charitable contributions are considered an irrevocable gift, but the donor may choose to whom and when gifts are made. This flexibility allows the donor the opportunity to give differing amounts each year without having to stipulate the exact recipient. It greatly simplifies record keeping … instead of keeping a drawer full of receipts and cancelled checks for your tax preparer, you have one receipt. This allows the donor the opportunity to give to many different charities, but not have to track each gift.

Technically, the fund is not required to follow donor directions for distributions, although this is rarely the case. In most cases the donor can continue to advise the fund as to investment policies and strategies.

Unlike a private foundation, where 5 percent of the foundation assets must be given away each year, the donor-advised fund is not bound by a strict dispersal formula. Donor-advised funds work well in situations where the donor has fluctuating income but would like to keep dispersal of charitable donations at the same level.

Bruce Fenton is a financial consultant, a writer, and the Managing Director of Atlantic Financial Inc. Bruce welcomes inquiries, comments, and questions. He can be reached by contacting The Fenton Report.