For many philanthropically minded individuals, a private foundation is a great way to give. It lets them set aside a chunk of money that grows tax-free, take a tax deduction in the same year they make a donation, and dole out the assets over time to their charities of choice.
The trouble with such foundations is that they're complicated and time-consuming to set up and administer. "A private foundation can cost thousands and require a lot of paperwork," says Steven Thorne, an estate planner at the Arthur Andersen accounting firm in Chicago. "You need at least $50,000 to make a foundation worthwhile."
But if you don't have that kind of dough--or don't want the bookkeeping hassles--Fidelity Investments is offering a simple alternative: its new Charitable Gift Fund. You give at least $10,000 to start and at least $2,500 for future donations to any of three pools of mutual funds: growth, growth and income, and income. As with a foundation, you get the tax deduction the year you donate the money without having to distribute it at that time. The money is reinvested and grows tax-free.
A private foundation must give out 5% of its stash each year, while the gift fund need give out nothing. Your whole donation can be paid out years down the road to any number of nonprofit tax-exempt organizations.
Fidelity also gives you a slightly better tax break. Since the gift fund is considered a public charity, donors can deduct 50% for cash and 30% for appreciated stock. With a private foundation, the tax deductions are 30% and 20%, respectively. And foundations pay a federal excise tax of 1% or 2%; the fund doesn't.
QUASI-RICH. There are a few strings. Fidelity trustees must approve your charities, and there's an annual managers' fee of 1% to 2% of the fund. "I don't see it appealing to the wealthiest people," says Laurence Keiser, partner at Greenfield Eisenberg Stein & Senior in New York. "For the middle wealthy, someone with $1 million to $2 million, it may make sense--someone who can't afford his own foundation but is significantly charitable."
So far, the fund has drawn $10.2 million from 141 individual and corporate donors, says Executive Director Jamie Jaffee. Of this, $1.4 million has been paid out to more than 300 charities since November, 1991. And, says Jaffee, the fund hasn't suffered from the wounded economy.