Buffett's decision to donatethe bulk of his $40-billionBerkshire Hathaway fortuneto five foundations isunusual not only in its size,but for the thought process that createdit. Buffett, 76, said he planned to givethe lion's share to the Bill and MelindaGates Foundation starting immediatelybecause it offered a critical mass ofassets, infrastructure, and strategy tosolve problems faster. It's also significantfor another reason—Buffett choseto start giving while he was alive.What's the advantage? Not only will herealize potential tax advantages, butsomething more important—he is settingan example for family membersand is able to see the good he has donewhile he is alive.
You don't have to be a billionaire tobenefit from Buffett's "giving while living"strategy. "Thousandaires" can benefittoo. The following are a few ideas topull from Buffett's playbook on makingcharitable giving a lifetime strategy:
Talk it over first. A visit to a qualifiedfinancial and tax advisor is a goodfirst step in the giving process no matterwhat your age or assets. The amount ofmoney you have to give away is notimportant, but planning ahead is. Itmakes sense to examine giving as partof your lifetime asset management andestate planning strategy.
Do your research. Warren Buffettprobably had no trouble getting financialstatements from his buddy BillGates. Likewise, any charity of qualityshould have detailed financial recordsavailable to potential donors. You'llwant to see the charity's audited financialstatements and federal Form 990,which shows the charity's tax status,programs, and how it spends its funds.Before you donate, always see how efficientlythey're giving money away. Forinstance, if the charity is spending morethan 35 cents of every dollar donatedon operating expenses, be wary. Thereare also Web sites that can help youcheck out various charities. For example,www.Guidestar.org, www.Give.org, www.Charitynavigator.org, andwww.Charitywatch.org are among theleaders in this field.
Figure out if you'll need incomefrom your gift. It is possible to give andreceive. While Warren Buffett doesn'tnecessarily need to draw an income fromhis donations, you, on the other hand,might need income, and there are waysto do that with tax advantages besides.The following solutions are complicated,so you might want to talk with a financialplanner first to evaluate your entirefinancial picture and then involve anattorney or tax professional:
•Charitable gift annuities allow adonor and a charity to enter into anannuity agreement that will allow paymentsback to the donor that may bepartially or completely tax-free;
•Charitable remainder trusts allowsomeone to donate cash or appreciatedproperty to a trust that can sell theproperty and distribute proceeds to thedonor on a tax-advantaged basis;
•Life estate agreements let someonewith a home or farm keep living therewhile they receive a tax deduction forthe gift. When they die, there may besavings in probate costs and estate taxes;
•Pooled income funds are offeredby many established mutual fund companiesand allow you to deposit moneynow for distribution to charity in thefuture while allowing you to receivetax-advantaged income.
Making a gift to a foundation or acharity. To get more bang for his buck,Buffett donated his money to existingfoundations. If you know of a foundationdoing what you want to do, firstsee if it checks out on a financial andperformance standpoint, and then seewhat its policies are toward acceptingdonations. Not all foundations acceptdonations from the general public (eg,the Gates foundation actually doesn't).
Consider that charity is not allabout money. A giving strategy can beabout time and expertise, not justmoney. Charitable giving should involvean exploration of values first andhow the giver—and possibly the giver'sfamily—should be involved in theprocess over time.
Reprinted with permission from the Financial Planning Association(www.fpanet.org), the membership organization for thefinancial planning community.