Donor Advised Funds – An Efficient Tool For Charitable Giving

83% of Americans give annually to charity. Charitable giving is clearly an integral part of the culture of successful families in this country. While Americans are generous with their giving, they are often giving inefficiently from a tax perspective. Families could be saving significant dollars by donating securities or assets with long-term appreciation to charity or to a donor advised fund (DAF) instead of contributing cash directly to charities (which is more typical). Donor advised funds have been the fastest growing philanthropic vehicle in the nation over the past few years, yet a recent survey by Fidelity Investments found that 70% of investors had never heard of them. Donor advised funds offer wealthy and middle-class families many of the benefits of having a charitable private family foundation without the costs, administrative hassles, and high minimum asset levels that typically go with them. Many very wealthy families are choosing to use donor advised funds rather than setting up a private family foundation due to the dramatically lower costs and administrative headaches. Some wealthy families are even shutting down their private foundations and moving that money into a donor advised fund program. Private foundations are often uneconomical in sizes of under $3-$4 million. Donor advised funds are a simple, affordable, and flexible charitable-giving tool.

What are Donor Advised Funds and how do they work?

A donor advised fund (DAF) is a separate account of a sponsoring charitable organization. They can be set up at a wide variety on sponsoring organizations including various large existing charities as well as financial firms such as Fidelity, Schwab, and Vanguard. From this account, donors recommend grants to other charitable organizations. Most DAF programs have the ability to accept appreciated securities as donations. When you contribute a donation (of appreciated securities or cash) to your DAF you get the full appreciated market value of the asset as a tax deduction, in the year of the donation. Upon receiving the gifts the DAF sponsor liquidates the donated assets tax-free and invests the proceeds in a variety of investment options. Generally the donor gets to recommend how the assets are invested among a number of investment choices. Over time the donor can recommend grants to IRS qualified charities and the DAF sponsor distributes cash grants to these recommended charities. Grants may be made over many years into the future even if a large donation was made in just the first year. These DAF accounts are quite easy and cheap to set up. Schwab and Fidelity’s donor advised fund programs require a minimum initial contribution of only $5,000, minimum additional contribution amounts of $500-$1,000, and minimum grant sizes of only $100.

Advantages of using a Donor Advised Fund for your Charitable Giving:

1. An immediate tax deduction of the full appreciated value of the securities donated. You avoid paying any capital gains tax on the sale of the asset. This is much more tax efficient than contributing cash to your charities. You get to give the full appreciated value of the securities to your charities rather than the smaller after-tax proceeds. Make sure you have held the appreciated asset at least a year before donating.

2. Simplification. You making one donation of appreciated securities to your DAF, and then you get to grant multiple smaller amounts of cash to each of your favorite charities. This is much easier administratively than donating smaller amounts of appreciated stock separately to each of your charities (some of which may not accept securities). You only need one tax substantiation letter using a DAF, versus multiple letters if you are donating separately to each charity. DAF’s make it easy to contribute appreciated securities to them. You can also automate your giving from this account on a monthly or other regular basis to your favorite charities. The DAF sponsor does all the administrative and recordkeeping work, and sends the checks to the charities for you.

3. Post-donation appreciation may increase the size of your grants. Since you may donate to your DAF in one year and may grant the money to your charities several years later, any appreciation of the investments during that time will result in larger donations to your favorite charities. Assets in your DAF account can grow faster because they appreciate free of taxes.

4. Good Estate Tax Planning. All donations made to a DAF are removed from the donor’s estate immediately. A large donation to a DAF in the current year may provide many years of future giving to charities and immediately reduces potential estate taxes. Simply planning to give the same amounts directly to charities each year from the donor’s estate provides no shelter from potential estate taxes.

5. Low Minimums, Costs and Ease of Use. As described above many of the programs such as those at Fidelity and Charles Schwab have very low minimums for contributions and donations. They are easy to set up and use and they typically have no startup costs.

6. Ability to donate now and get the tax deduction, and decide where to give later. These funds allow you time (years if you wish) to research and decide where you wish to give.

7. Create a legacy and start a family tradition of philanthropy. DAF’s allow you to get your kids involved in helping pick out the charities and try to teach and inspire them about philanthropy. It is possible to assign your children as successor advisors and extend the grant-advising privilege to them after your death.

8. No minimum distribution requirements or legal red tape like separate tax returns (unlike foundations which must distribute 5% of assets annually and file separate tax returns). Private foundations must pay excise taxes of 1%-2% of net investment income annually, and DAF’s do not.

9. Privacy. Gifts from donor-advised funds can be made anonymously. Private foundations must make their tax returns available to the public, and sometimes families get inundated with requests because of that.

Disadvantages of Using Donor Advised Fund’s:

1. Administrative Costs. While dramatically lower than a private foundation, the DAF sponsors all charge some sort of administrative fee to run the program. These administrative charges cover the cost of keeping track of all the accounts and donations, and distributing the grants. Schwab and Fidelity charge a .60% administrative fee for the first $500,000 in the plan and the fees drop to only about .20% for accounts with $1.5 million or more. These fees have been cut significantly over the past several years. The underlying investment fund options charge a typical expense ratio of about .50-.65%. Other DAF sponsors may charge significantly higher fees that this.

2. Donations are Irrevocable. Once you donate the money to your DAF you can’t get it back. You are still in control of it, but it can only be donated to charities and given away. Only donate what you are sure you won’t need yourself or for other purposes.

3. Restrictions. You can’t use a grant from your DAF to make good on a personal pledge to a charity. You also can’t donate to a charity with the expectation of any personal gain or benefit (concert tickets, etc.). In some DAF’s the investment choices are somewhat limited.

4. No Income to You. DAF’s are not a technique if the donor wants income for themselves or their family from the donated asset. If income is a priority, the donor should consider other vehicles such as a Charitable Remainder Trust.

5. No Ability to Hire Staff. Since all of the administrate work is done by the sponsoring organization, the donor themselves cannot hire family members to do the work as they might with a private family foundatio

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Structured Settlements – Do You Pay Taxes on a Structured Settlement?

Sometimes if a claimant is a case for a large sum of money, the defendant, the lawyer for the plaintiff, or consult a financial planner in cooperation with the settlement, the payment of the settlement in installments over time rather than an amount. Where arrangements are paid in this way is a structured settlement. Often purchasing one or more annuities will create the structured settlement, which is to guarantee the future payments.

A structured solution may provide for the payment in almost all the plans of the parties to choose. So the system can be paid in annual installments for several years, or it can be paid in periodic lump sums every few years.

Benefits of A Structured Settlement

An important advantage of a structured settlement is tax evasion. With the right set-up, a structured settlement can significantly reduce the fiscal obligations of the plaintiff as a result of the settlement and, in some cases, is exempt from tax.

A structured settlement can protect a plaintiff who disappeared settlement funds when they are needed to pay for the future care or needs. Sometimes it can help protect a plaintiff from ones – some people are just not good with money, or can’t say no to family members who want to share the wealth, and even a large settlement can be quickly exhausted. Minors can benefit from a structured settlement also, as a rule for certain expenditure during their youth, an additional fee to pay for college or other educational expenses, and then one or more payments at adult age. A wounded person on the term, special needs may benefit from regular flat-rate amounts that medical equipment or modified vehicles to buy.

In some situations, the better for a severely disabled claimant to a special needs trust, instead of entering into a lump sum or structured settlement. Any plaintiff, who has received or expected Medicaid or other public assistance, or the guardian or curator received in entering a settlement on behalf of a Department with a disability, should consult with a financial planner about their situation a disability to choose a particular option or system structure.

Possible disadvantages of Structured Settlements

Some people who enter into structured settlements feel trapped by the periodic payments. Maybe they want a new house or other expensive post, but do not have the means, because they can’t borrow against future payments under their settlement.

Some people will do better by acceptance of a standard system, and invest it you. Many standard investments are a greater efficiency in the term than the annuity in structured settlements.

How to sell Structured Settlement Online

A structured settlement cans a person for compensation for the loss of the monthly or annual way to deadline. This period shall be decided on the judgment and cannot be changed without the prior consent of the judge. The alternative to periodic premium is a lump sum at a time and in such circumstances, the third-party who arranged the purchase of the plan and pays a lot of money to the beneficiary of the policy.

The sale deal can be done by means of online transactions, but it’s better to have some of the formalities of the deal say that it can be sold through online transaction.

It’s easy to find a structured solution by simple online calculator to find the specific keywords. This calculator helps you to specifically define the exact value of the annuity value of the structured settlement plan. But one must remember when the annuity value is calculated as a pre-term price would be 50%-65% less. Depending on the average price, it is better to decide on the sale of a part or the entire sales of structured settlement annuity amount.

Finding a reliable company that can purchase the structured settlement plan is again easily by simple search. The websites of the companies are available online and the websites of the negotiations can be done and as an experienced real estate agent is involved in this transaction can also coordinate the whole thing more quickly and professionally. Meticulous search online will help you to different companies assessed by a comparison and choose the best offer with a reputation for caring.

It takes time to get money in the hand when the structured settlement plan will be amended with the approval of the judiciary. Between the companies that the contract will cover all of the formalities and the recipient can expect the money in hand to get through the next 60-90 days.

Sale of A Structured Settlement

If you have a structured solution, you will be contacted by a company interested in purchasing your system, or are curious about the sale of your company in exchange for a fixed amount buyout. About two-thirds of the States have laws governing the sale of structured settlements adapted to limit and the tax-free structured settlements also are subject to the Federal restrictions on sales to third parties. Also some insurance companies will not assign or transfer to third parties, in respect to discourage the sale of structured settlements. As a result, depending on where you live and the terms of your annuity, it is not possible to sell your solution.

Note that companies that purchase structured settlements of plan to take advantage of their purchase, and sometimes their offerings may seem rather low. You can take advantage of the approaching more than an undertaking in relation to the sale of your solution, in order to ensure that the highest payoff. You also want to make sure that the company will buy your settlement is established, – you don’t want a fly-by-night outfit to the rights to your annuity to obtain, but to disappear or go bankrupt before you pay the buyout money. You may have to go to court before a judge to approve buyout. It is usually a good idea to consult with a lawyer before entering into an agreement to sell your solution.

Special considerations for the sale of A Structured Settlement Any person entering into a structured system must be wary of the potential exploitation in connection with the settlement:

Excessive commissions – annuity can be very profitable for insurance companies, and they often have very large orders. It is important to ensure that the committees responsible for the creation of a structured settlement not too much of its main consuming.

Exaggerated value – sometimes, after negotiating a settlement figure, will defend the overvaluation of the value of a structured settlement. As a result of the plaintiff in the acceptance of the settlement, actually obtains a substantially lower dollar value than was agreed. Some suspects have paid the full nominal amount of the settlement, knowing that later would get significant discounts from the annuity companies that use them. Prosecutors consider comparing fees and commissions for similar arrangements through a variety of insurance packages, to ensure that they actually get full value. The plaintiff wishes to make it a condition of the scheme that the accused actually the full value of the settlement to be paid on the designing of the structured settlement, and that any discounts received by the defendant in the scheme for annuities paid to the plaintiff.

Create yourself – there are cases where the plaintiff’s Attorney in the insurance and suggests a structured settlement on behalf of a client that does not disclose that the lawyer is to the annuity to buy the farm, or a large Pocket Commission on annuity. There are also situations where the lawyer of the plaintiff refers the client has given a financial planner to set up a structured solution, without the financial planner, notary a referral fee in connection with the account of the paying customer. Make sure you know what financial interest, if applicable, your solicitor has compared each financial services sold or recommended by the lawyer.

Life – it is a pity, but many people get great personal damage or compensation of workers settlements has a shortened life expectancy as a result of their injuries. It is important to the life expectancy in combination with a structured settlement, to study and consider the desirability of an annuity in which payments will stop after death. Sometimes it is useful to insist on an annuity that a minimum number of payments or who pays the balance in the legacy of the plaintiff, so that the value of the settlement is not lost from an insurance company in the early death of the claimant pays.

Multiple insurance companies – for larger settlements, it often makes sense to buy an annuity-structured settlement from different companies, the share of the arrangement between these companies. This can provide protection in the event that a company that has issued your annuity settlement package goes bankrupt – even in the event that one of the companies in arrears, in whole or in part, on your settlement payments, you still have a full payment of the other companies.

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