Fidelity Charitable Gift Fund


Your own personal foundation

The only sane antidote to massive wealth is massive philanthropy. But giving is a habit that is best begun before you are loaded; the great philanthropist Carneige began when he was making a few dollars per week. Indeed, some of the most influential funding in history has been small, but creative, grants.

You can write a check any time the spirit moves you, but like all things in life, they are tools that can improve your aim. One tool of philanthropy is a personal foundation. A foundation gives you flexibility and can increase the amount you can give. However you can spend half your fortune — no matter its size — creating and maintaining a foundation, or you can do it the easy way, a way that is suitable to middle class assets.

The Fidelity Charitable Gift Fund provides most of the functions you, a non-tycoon, might want from a personal foundation. Best of all, it requires a minimum of “only” $5,000.

Here’s how it works:

You deposit your contribution in Fidelity Charitable Gift Fund which in turn invests the amount in one of their mutual fund pools. You get to choose the level of risk/payback you want for your money, but Fidelity chooses and runs the fund. Whenever you want to make a donation, you tell Fidelity, and as long as it is a tax-deductible outfit (it can’t be an individual), they send ‘em a check. You can do this online with a very graceful and easy interface; it even remembers all the details of your frequent grantees, so you just need to click.

The main advantages are four:

1) The money grows. Like a real foundation, your money is invested, and the returns on those investments are reinvested and further enlarge your fund for giving. Depending on what percentage you disperse each year, the total can accumulate significantly. (Fidelity suggests you give at least 5% of your fund each year.)

2) You can gift stock (or securities) directly to the fund. When highly appreciated stock (as in a boom), is cashed out it triggers huge capital gains tax for the owners. With a personal foundation you can donate the stock without cashing it. The Fidelity Gift Fund account is credited with the high value of the stock at market value, but the giver (you) doesn’t have to pay for the huge gains, because those gains are now the gains of a non-profit fund. You receive the normal charitable giving tax deduction for the market value of the stock. You can do the same with ordinary stock investments. Say you were lucky enough to buy 20 shares of Amazon when it was at $20 per share. Say when Amazon hit $200 per share, you decided you wanted to do something creative and meaningful with your small fortune of $4,000. You bestow the Gift Fund with the 20 shares of Amazon, which then credits your philanthropic account with $4,000. But instead of having to pay a capital gains tax on $3,600 ($4,000 minus $400, your cost), you get a tax deduction on $4,000. That $4,000 can then amplify further (see point 1). A common tactic for Gift Fund users is to donate their highest flying, most inflated stocks for maximum philanthropic joy and smallest capital gains pain.

3) It’s free. Well, almost free. Fidelity charges the usual industry standard of any mutual fund (less than 1%), but this is far less than hiring a personal fund manager, or even setting up a private foundation yourself.

4) You get to name your foundation anything you want. Having a foundation of your own focuses attention on keeping it full, and encourages discipline in giving it away.

Because accounts within the Gift Fund are so easy to set up they are often used for giving circles. A giving circle is a group of friends or advocates who decide to combine their resources to fund a cause. They create a virtual foundation without the usual expense and work of setting up a bona-fide non-profit (which is needed to receive funds, but not give them) and collectively research and debate who/where/how to fund their mission.

The Gift Fund is so useful for givers of more modest means that is has drawn in about $2.5 billion dollars, making the collective Fidelity Charitable Gift Fund the third largest public foundation in the US, and the number one foundation in total amount of money dispensed last year. Of course it is not really one foundation, but 27,000 small foundations, many of them pioneering creative philanthropy. You don’t have to fund the opera and hospitals. As an example, here are some donations clients of the Gift Fund recently made:

* Support for a historic preservation speaking tour
* Rebuilding a scout camp destroyed by fire
* Support for an archeological dig in a national park
* Support for Native American students majoring in science
* Supplying an animal shelter with an examination table and equipment
* Support for a summer theater

My experience with the Gift Fund has been great. It was simple to set up, with a minimum of paperwork, and when it comes time to make a donation, the effort is pretty painless. Having a convenient do-it-yourself vehicle, with tax breaks, and investment upside, has encouraged our giving.

-- KK 12/28/03