History of Charitable Giving

Charitable giving is a time-honored human custom that transcends cultures and time. From the very dawn of civilization, human beings have been drawn to the idea of giving to one another. This has taken on a variety of forms through the ages, but one thing has remained consistent: philanthropy, literally love of man, is something ingrained deep within each of us.

The origins of the word philanthropy go all the way back to the story of Prometheus. According to ancient Greek mythology, Zeus thought man much too backward and primitive to share one of the most important resources the gods had: fire. Without fire, man literally lived in the dark, a cave-bound existence without the ability to create warmth, cook, or fashion tools. Zeus looked out on the pitiful lot of humans and decided to destroy them.

The Titan Prometheus, however, had taken a liking to humans. He saw great promise in them, and believed they were destined to do great things. All they needed was a head start, a little boost. He believed that fire would change their existence, so he shared that gift because of his philanthropy, his love for man. It didn’t turn out all that well for Prometheus though as Zeus had him chained to a rock and had his liver plucked out daily by an eagle, which grew back each night. Many years later, Prometheus was rescued by Hercules, who was on his way to another adventure.

This concept of charitable giving was taught by Plato in some of the earliest organized educational efforts in human history. Later of course, like much of Greek culture, this charitable giving became a custom in the Roman world. Julius Caesar himself was much beloved by the Roman citizenry because of his philanthropic efforts to make Rome a better place for all of its citizens. This idea of private charitable giving for the public good found its start, and was here to stay.

Of course, the spread of Christianity throughout the west entrenched the concept of charitable giving. The Apostle Paul wrote to the Corinthians that charity was the highest virtue attainable by Christians. This echoed Jesus sentiments when he told his disciples that loving one’s neighbor was only second to loving God. Charitable giving was now entrenched in one of the world’s major religions.

The Dark Ages would see less emphasis placed on charitable giving. With the relative unity of Greek and Roman culture gone, the world became tribal, and people viewed one another as rivals rather than neighbors. The focus was on conquest rather than philanthropy.

The Renaissance, however, saw a rebirth of classical ideals and philanthropy was among them. As philosophers like Sir Francis Bacon mused on goodness, the idea of charitable giving was central to the concept. Even in government, the term commonwealth was born, focused on the idea that the government’s efforts, whether military, legislative or economic, were all undertaken to foster the common good.

During the 18th and 19th centuries, which saw a drastic division in economic status in both England and America, the notion of nobles oblige the obligation of nobility and the privileged became popular. While many had become quite wealthy either through land holdings or through becoming industrialists, the idea was that there was an obligation among those who were blessed with wealth to engage in charitable giving to benefit their fellow man. Just as they had been blessed, they believed they too had to bless others.

Large private foundations were born during this era through the charitable giving of men like John D. Rockefeller and Andrew Carnegie. Carnegie, in fact, left the vast majority of his wealth to the city of Pittsburgh for use in public projects. History often depicts these men as robber barons, but their charitable giving was unmatched in their day.

It is doubtful that we will ever stop loving our fellow man or engaging in chari

Charitable Giving With Retirement Benefits

Retirement funds and charitable planning may not be two areas most people would naturally think to combine. But in many cases, donating retirement benefits to charity can be an ideal solution, both for the donor and the recipient.

The first and best reason to leave retirement benefits to a charity is, as with any philanthropic gift, to benefit the organization. If you don’t want to help a particular charity achieve its goals, there is no advantage to making it any sort of gift. While you can certainly make charitable gifts in more or less cost-effective ways, the point of giving is to transfer assets to a cause you wish to support. Leaving retirement benefits to charity may help achieve other estate planning goals, as I will discuss later in this article, but only if philanthropy is already a priority.

That said, once you have one or more charities in mind, few people want to cut the government a larger piece of the pie than necessary. Giving retirement plan dollars to charity can be a highly tax-efficient use of your savings. Note that, throughout this article, the retirement benefits I am discussing are those where distributions typically trigger income tax, such as traditional IRAs or qualified retirement plans. Roth plans, where distributions are income tax-free, do not offer any particular advantage for charitable giving.

Since charities are exempt from income tax, they can receive gifts of retirement benefits tax-free, as long as the gift is structured correctly. Retirement plan assets are therefore worth more to a charity than they would be to an individual who would have to pay tax on any distributions.

In contrast, an inheritance is not considered income, so inherited cash would not be liable to income tax. Heirs must pay capital gains tax on other inherited assets such as stock or bonds, but generally only on gains that occur after the decedent’s death; taxes on gains that accumulated during the decedent’s lifetime are forgiven through a so-called step-up in the asset’s cost basis to its date-of-death value. A retirement plan, on the other hand, does not receive this stepped-up basis.

There are situations in which leaving retirement benefits to charity might not be an ideal estate planning solution. A young individual beneficiary may, in fact, do better to inherit a retirement plan than to inherit an equivalent amount of after-tax dollars. This is because, if he or she makes use of the mechanism that stretches payouts over the beneficiary’s life expectancy, the power of income tax deferral may leave the beneficiary better off.

The minimum distribution rules for retirement accounts also mean that you could end up leaving the charity relatively little if you live long enough to exhaust most of the plan’s value. Long-lived plan participants may wish to consider giving their minimum required distribution directly to the charity each year, or revising an estate plan to provide for the charity in a different way as the retirement plan diminishes in value.

How To Make A Charitable Gift With Retirement Benefits

If you plan to leave your retirement plan to a charity, there are several ways to go about it, each with its own advantages and disadvantages. Maybe the most straightforward way is to simply name the charity directly as the beneficiary of 100 percent of the plan’s value at death. Income tax is easily avoided, and the estate tax charitable deduction is available for the full value of the gift. This method also works if you leave a retirement account to multiple beneficiaries, as long as all of them are charities. With this method, it is important to make sure all paperwork is in order. Some plan administrators may require documentation before allowing the charity to collect the benefits, so it is important to make sure that no one involved is taken by surprise.

If you wish to split a retirement account among several beneficiaries, and not all of them are charities, planning becomes slightly more complicated. The general rule is that either all beneficiaries must be individuals, or none of them can use the life expectancy payout method. If you name your son and a charity as equal beneficiaries of your IRA, unless you take additional measures, your son will be forced to forego the income tax deferral he could otherwise enjoy. Note that if your spouse is the only non-charitable beneficiary, this issue is not a concern, since he or she can simply roll over the share of benefits into his or her own retirement plan.

There are two ways to work around this rule. If the beneficiaries’ interests in the retirement plan constitute “separate accounts,” each account is treated as a separate retirement plan, so individuals can take advantage of the stretch payout options. This method is useful, but risky, because beneficiaries must establish separate accounts by December 31 of the year after the year of the plan participant’s death; if they do not, the less beneficial rules automatically take effect. The other option is for the charity to receive a full payout of its share by September 30 of the year after the year of the participant’s death. In this case, the charity is “disregarded” as a beneficiary and individual or individuals can take distributions as they would if no charity had been named.

You do not have to split up the account by percentages. You can also designate a fixed-dollar amount to go to charity, and leave the remainder to other heirs. However, anecdotal evidence suggests that some IRA plan administrators will not accept such designations on a beneficiary form. In addition, this sort of designation can trigger the same problem discussed above; depending on how the fixed-dollar gift is structured, the option of separate accounts may not be available (though the September 30 payout method will be). If this sort of gift is small, it may make more sense to forego the slight tax benefit and simply make the charitable bequest from other assets and leave the retirement funds solely for individual beneficiaries. Alternately, you could make the gift to charity conditional on payment by September 30, though this will require careful planning to make sure the estate receives the proper charitable estate tax deduction.

There are a couple of other ways to protect the interests of individual beneficiaries when leaving a fixed-dollar amount to charity. You could separate your retirement account into two separate accounts, leaving one entirely to the individual beneficiary, and dividing the other between a set gift to charity and the residue to the individual. While a little of the individual’s benefit may not eligible for stretch payments, the bulk of it is protected. If the account is not separated, you may also be able to count the fixed amount of a gift to charity as the account’s minimum required distribution in the first year after the participant’s death.

Some donors may wish to leave an amount that is neither a fixed amount nor a percentage, finding it more convenient to determine the amount using a formula based on the size of the overall estate or with adjustments depending on other amounts passing to the charity. IRA providers may refuse to accept such designations, however, since the provider has no way to know the total size of the participant’s estate and may not be inclined to get involved in complicated accounting matters. Some providers will allow you to specify that your executor or other fiduciary will calculate and provide the formula amount, relieving the IRA provider of this responsibility. Obviously, in this instance, it is essential that this responsibility is assigned by the proper estate planning documents.

Naming a charity as a beneficiary directly, whether alone or in conjunction with others, may be the most straightforward solution, but it is not the only way to make this type of gift. If it is not feasible to name a charity as a beneficiary for any reason, there are several alternatives. You can leave the benefits to a trust, with instructions that the trustee distribute the assets to the charity. This option, however, creates substantial complexity regarding minimum required distributions and fiduciary income taxes. As an alternative, leaving the retirement benefits to a donor-advised fund, which is tax-exempt itself, will sidestep many of these problems, though donor-advised funds have their own drawbacks as well as benefits.

You can also leave the retirement benefits to your estate, with instructions in your will or other estate planning documents that the executor should then give the money to the charity. The estate is entitled to an income tax deduction for amounts paid or set aside for charity, but as with leaving benefits to a trust, this option is complicated and requires expert knowledge, both at drafting and execution.

If you wish to encourage philanthropy in an individual heir, such as an adult child, you can make a disclaimer-activated gift instead of making a gift outright. For instance, you could name your daughter the plan’s primary beneficiary, with the charity as a contingent beneficiary, specifying that the charity would receive any benefits your daughter disclaims. You may or may not express a wish that your daughter leave all or part of the benefits to the charity. Either way, this disclaimer allows your primary beneficiary to redirect all or part of the benefits to the charity without paying income tax on them first.

Types Of Charitable Entities

Up to this point, I have simply said “charity” when discussing the object of a philanthropic gift. In order to secure the beneficial tax treatment I have mentioned, it is important to understand which organizations are appropriate choices for making a gift of retirement benefits. Most of the techniques in the prior section rely on the assumption that the charity is tax-exempt.

A public charity, which you may sometimes hear described as a 501(c)(3) organization, is what most people mean when they simply say “a charity.” These organizations meet a variety of requirements imposed by the Internal Revenue Service in order to secure and maintain tax-exempt status. Gifts to such organizations present the fewest complications, though it is best to verify that the organization is truly exempt. For most charities, this will not be a problem.

Private foundations are generally also suitable recipients. They are also 501(c)(3) organizations, but are primarily supported by the contributions of one donor or family. While a bit more administratively complex than public charities, private foundations will also offer similar tax benefits (though there are stricter limits for income tax purposes on gifts to many private foundations). There are a few special rules that may come in to play with this sort of gift, which are beyond the scope of this article, so you will probably need advice from professionals with training in this area. Also note that you may not make a disclaimer-activated gift where the individual beneficiary is a trustee or manager of a private foundation and the foundation is the contingent beneficiary.

As mentioned in the preceding section, donor-advised funds are suitable recipients for retirement benefits as well. By leaving assets to a DAF with family members as advisors, you may encourage philanthropy in your heirs while taking advantage of the fund’s income tax-free nature. Take care to make sure that the fund you choose, however, meets the applicable requirements to assure the tax-free nature of the contribution.

Charitable remainder trusts (CRTs) that meet certain requirements are also income tax-exempt. Those that meet the requirements can be suitable recipients for retirement benefit gifts. This strategy can benefit the individual heirs of the trust through an annual payout, either a fixed dollar amount (in a charitable remainder annuity trust) or a fixed percentage of the trust’s value (in a charitable remainder unitrust). Note that, as with many trusts, the administration can be relatively complicated and costly, and it is important to secure expert help in setting up a trust correctly. It is also important to know that qualified plan benefits have certain federal law protections that may mean your spouse must give consent before you can leave such benefits to a CRT. It can sometimes be appropriate to leave retirement account benefits to a charitable lead trust (CLT). However, unlike CRTs, CLTs are not exempt from income tax. For that reason, usually there are better ways to give retirement benefits to a charity (and better ways to fund the trust).

If you wish to support a beneficiary while also giving to a charity, some charities will allow you to fund a charitable gift annuity with retirement benefits. This approach avoids several of the complications created by leaving benefits to a CRT.

You should avoid leaving retirement benefits to a pooled income fund. Such a fund is maintained by the charity that will ultimately receive the gift. The organization pools the gifts of many donors, investing them and paying back a share of the fund’s income to the donor or a named beneficiary. When the donor or beneficiary dies, his or her share of the fund reverts to the charity. Such funds have use in life mainly as a lower cost alternative to a CRT. However, pooled income funds are not income tax-exempt, even if the charities running them are. All the benefits discussed in the previous section would therefore be lost.

Lifetime Gifts

Most people will probably want to continue using their retirement accounts during their lifetime, but this consideration does not apply to everyone. Making charitable gifts with retirement benefits, therefore, does not only have to be an estate planning technique.

In most cases, the only way to give assets in a retirement account to charity during your lifetime is to withdraw the money first. This generally means the withdrawal will be taxed. If you make the gift in the same year as you take the distribution, the income tax charitable deduction could theoretically offset the tax on the distribution. Unfortunately, various restrictions including the percent-of-income limit on charitable contribution deductions, deduction reduction for high-income taxpayers and others mean that this is most likely not the case. Taxpayers who use the standard deduction rather than itemizing will not see any tax benefit from their gift.

Some of these drawbacks can be avoided by using smaller distributions and gifts. In addition, it is worth considering donating your minimum required distribution if you do not need it for other purposes. You must take your MRD annually from IRAs and other plans after a certain age. While it does not receive special tax treatment, you have to take the distribution regardless, and a charitable gift may well bring at least some tax benefit.

At this writing, Congress in considering efforts to revive a rule (which expired in 2013) that allowed individuals over 70 1/2 to transfer funds directly from an IRA to a charity without taking a distribution first. If this option returns, it has narrow limits, but is obviously beneficial for lifetime gifts from IRAs.

Retirement plan participants who take distributions before age 59 1/2 are usually subject to penalty taxes. However, if a young participant wants to pledge annual gifts to a charity, an exception known as the “series of substantially equal periodic payments” might make this possible. Because this exception must meet extensive IRS requirements, you should strongly consider consulting a professional to arrange such a gift.

Some sorts of distributions are not subject to full normal income tax, which may make them better suited to charitable giving. For instance, distributions of employer stock from a qualified plan receive special favorable treatment. Any appreciation above cost basis that occurs while the stock is in the plan is called net unrealized appreciation (NUA), and is not taxed until the stock is sold. If you hold stock that has untaxed NUA, you could contribute it to a CRT, avoiding capital gains tax while generating an income tax deduction.

Thinking about your retirement accounts and your philanthropy together, while not always intuitive, can offer benefits in both areas. Depending on your personal situation and your goals, your retirement benefits could be just the right fit for fulfilling your charitable aims.

What is the Definition of Personal Finance – Budgeting

If you find yourself asking where to begin with learning proper finance, start with the definition of personal finance, budgeting. Why the definition of personal finance is budgeting we will outline in the following article, because truly there is no more important lesson as to what proper financial management entails, and what will most directly contribute to your success with your money.

Proper Budgeting is Personal Finance Mastery

There is no need to look beyond budgeting when beginning your journey towards personal finance mastery. Budgeting can be a scary prospect when you have not done so for a long time, the money tale told by your expenses and income can paint a poor picture. But whether you are a millionaire with investments, countless loans, mortgages and stock holdings, or an honest hardworking fellow just beginning your financial journey, budgeting is the key to continued success with your money.

Proper personal finance budgeting allows you to account for what monies you have coming in and what monies you have flowing out of your accounts. Mastery of your finances, no matter your level of income is a matter of using this information to make decisions that increase the money you have coming in each month, and decrease the flow of cash you have leaving your possession. If you choose to achieve this through additional investments, decreasing interest rates with consolidation loans or a job promotion the basics of personal finance budgeting remains the same.

Proper managing of one’s debt, income and expenses is the soul of managing your money and that is why the definition of personal finance is budgeting. There is no need to get more complicated than this, with your credit cards, payday loans, investments and stock options, you will find yourself on a sound financial footing if you keep a detailed budget, follow your money, and ensure that you spend less than you earn each and every month.

To properly budget your personal finances you simply add up your sources of income, account for every penny that you have flowing to you each month, and track every expense. I am not concerned with the exact system you employ as long as you are detailed and know how your money is flowing. Track your loans, and if you have bad credit lenders, know how much you are spending in interest. Track your credit cards and what amount of your payments applies to principle and what cash goes towards interest. Make knowing your finances your business and when you have an accurate picture of the flow of your money, then work to improve your finances.

Most mistakes of personal finance are made because honest, hardworking people have an unclear, or foggy idea of how their money is spent from month to month. With a little attention to the details of your cash flow you will find that there are countless ways to save additional money, and increase your income. Keep a focus on the basics of personal finance and never forget that the definition of personal finance is budgeting. You too can start making a profit today.

Ariel Pryor is a consumer credit expert who hel

Charitable Giving and Your Personal Finances

Philanthropy is Full-Anthropy

Has anyone ever asked you what you would do if you had all of the money in the world? Most commonly, people respond with, “I’d buy a bigger house or travel.” This is often followed by, “I’d donate more money to charity.”

People who are charitably inclined usually are living a rich, full life. We all have some affinity to a specific charity we like to support. As a Financial Life Planner, I have come to learn that charitable giving is an important goal for most people. Yet most of us don’t have a process for funding this goal.

A simple way to meet your charitable goals is to contribute to a Donor Advised Fund (DAF). A DAF is like a holding account created by a sponsoring charity that holds contributions from various donors and manages the charitable donations. The DAF will send you a quarterly statement of your contributions, along with a gift receipt for tax purposes. These contributions can then be distributed to qualifying charities at some point in the future.

You can usually deduct the full value of the charitable gift – whether it is appreciated stock (avoiding capital gain), or cash. The deduction is subject to adjusted gross income limitations. The gift is irrevocable and is also separate from your estate. Any income or growth in the fund is not tax deductible BUT is exempt from taxes. Once the gift is made, you can recommend how the donation is invested, through asset allocation strategies. You can name successors to the account, who then can manage the fund and make grant recommendations. This provides for a legacy of giving that can last for many generations.

You can get your kids or spouses involved and create your own account title. I know families who have semi-annual meetings with their kids and grandkids to discuss where the grants should go. What a great way to introduce philanthropy to kids!

The DAF accounts can be set up with as little as $5,000. You can support multiple charities with a single donation, usually with as little as $100. When you are ready to recommend to the DAF to make a gift to a specific charity, you just fill out a form and mail it to the DAF. The donation from the DAF can be anonymous, or can have your name identified as the donor.

What part do philanthropy and charitable giving play in your value system? Think about causes and organizations you would like to help. Most people that give to charity are happier and healthier. They experience a sense of satisfaction of helping people or specific causes.

John Templeton wrote: “Happiness comes from spiritual wealth, not material wealth… Happiness comes from giving, not getting. If we try hard to bring happiness to others, we can not stop it from coming to us also. To get joy, we must give it, and to keep joy, we must scatter it.”

Please note: This article is for informational purposes only and should