Marketplace

Conflicting Advice? Not

Question: A couple of days ago, in response to a questioner's inquiry about some ideas which had been presented to his mother at a seminar, you dismissed charitable remainder trusts as one of several risky and wacko investing ideas. Yesterday, you suggested that they were a legit combination of charity and retirement planning. A number of years ago I purchased an annuity which combined life insurance with a traditional annuity, which I don't believe can be gotten today. After several years (required to hold for at least 7 years), I cashed it in, taking a 20 year payout at guaranteed interest, eventual payout to exceed my then current value of 25% appreciation, with the balance to be paid to my beneficiary. It seems that a charitable remainder trust combines this sort of annuity with a donation. Why is it not a good idea? Your advice seems conflicted. I had been considering changing my will to create a CRT for the small amount of giving which I feel I can afford, as it seemed to be a valid combination of giving and investment. Nick, Glover, VT

Answer: I'm a fan of charitable remainder trusts. The same goes for charitable gift annuities. In both cases, you support a charity. You get some nice tax breaks. And you can set up a steady stream of income for life. In answering the question where I made some negative remarks it was about the kind of financial conference where lots of high-fee high-cost peddlers of products get together to hawk their wares to unsuspecting and unsophisticated families. .

So, to be clear, products like charitable gift annuities can be a critical part of smart estate planning. However, there are a number of financial and emotional factors to consider before buying a charitable gift annuity and similar financial arrangements (such as a charitable remainder trust and a charitable lead trust). Top of the list are the many estate planning issues to think through, from your income stream to your children's inheritance. It's also important to realize that the decision is irrevocable. You can't wake up one morning and say to yourself, oops, I made a mistake. That's why in most cases sensible philanthropic financial planning requires professional guidance.

Still, the time spent researching the product and seeking out professional advice can be worth it. Seems to me you made a good move.

04/09/08 by Chris Farrell

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Charitable giving

Question: If I only have XX dollars in discretionary funds this year, what's the best way to spend them? Local food banks? International aid? Just a favorite charity, for a favorite cause? Split the dollars among all of these? I have some funds earmarked for charitable giving, and I know other donors (like corporations) are reducing their gifts, so I want to know how to make my giving really count. Joan, Moscow, ID

Answer: This is a really important question with the economy in a recession that is getting worse by the month. Employers slashed 533,000 jobs in November, and the unemployment rate has jumped to 6.7%. The broadest measure of unemployment, a figure that includes marginally attached workers and employees laboring part-time, stands at a dismaying 12.5% or 19.3 million workers, up from 8.4% a year ago, or 12.9 million employees. These numbers are dry reflections of hard times, from a family losing its home to foreclosure, a 50 year old worker getting a pink slip after a quarter century on the job, a recent college graduate working at temp jobs all over town, a single mother facing a sharp cutback in the number of hours at work, and so on.

It's also December, a traditional time for giving, partly because of the holidays but also for tax reasons. Uncle Sam gives you a tax benefit for charitable giving, but it has to be done before the end of the year to claim the deduction on your 2008 tax returns.

Of course, Americans get together all the time to share their concerns and passions, especially when it comes to improving their communities and society. We give money and time to support the arts, contribute to schools, build affordable housing, and tackle all kinds of social problems. We do all this activity through all kinds of charities, nonprofit organizations, and religious institutions that range in size from small groups of volunteers working out of a basement office to national fraternal organizations with several hundred thousand members to multi-billion dollar enterprises with skyscraper headquarters and global ambitions.

To me, what to give to at this time of need is a very personal decision. Hunger is a real problem. So is homelessness. But many community arts organizations also are facing financial pressures. What you want to give to may change over the course of the year. The problem most of us will face is having too little money to give. I know I'm not giving any specific guidance, but I think there are many worthy causes at a time like this. I do tend to like concentrating my charitable giving, but again, I don't think there's a right or wrong here.

Before giving, though, I would check on the of the watchdog groups that are available once you've focused in on an area. For instance, the Better Business Bureau has long kept a close eye on nonprofit organizations. The American Institute of Philanthropy promotes informed giving. These organizations prize financial openness. They frown on charities that operate with steep administrative costs or cozy insider dealings.

But this is a good question to open up to listeners and readers. Any thoughts on where to give during the recession?

12/05/08 by Chris Farrell

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Money and emotions

Question: You know how we often despise in others the qualities that are most like our own? Well, I have always been very critical of my mother for her spending habits, that she seems to spend to fill some kind of an emotional void or to feel secure knowing that she can spend (vs. times in her life when money was in short supply). I notice increasingly in my own spending habits, though, the same impulses, that spending money gives me a pleasure akin to eating a food that was forbidden as a child. Money is my Hostess snack cake. Growing up, we didn't have any, and now I can have it any time I want. The question is: What advice can you offer - or what tools, books, etc. can you recommend - to better understand and reshape my emotional response to spending? Because while my husband and I are lucky enough to have the resources (and luckily I hate to shop), I want to be able to set and achieve spending and saving goals, and to get the same satisfaction from having done so. Thank you for any help you can offer. I have just discovered your program (after listening to Marketplace for years) and am an avid podcast fan. Sarah, Efland, NC

Answer: Whew, this is a huge topic. It's also a wonderful question. I'd love to hear from listeners any suggestions they might have for you or personal experiences to pass on.

Looking at this question through a personal finance lens, I believe that giving is central to managing our money lives. Saving for emergencies and for retirement is central to any financial plan. But I would give primacy of place to giving. The mindfulness of giving forges connections with community and strangers. It reminds us that when you think about what matters most it's usually relationships, experiences and making a difference, not things and money. We get to support causes with our dollars and recycle stuff we no longer want and get it to people who need it more. "Money is to be spent or given away," says Ross Levin, a Minnesota based certified financial planner. "Planned, systemic giving to charity helps dislodge the hold that money may have over you. Sharing your experiences and hopes can have a huge impact on those around you. You get to choose to make a difference."

You asked for resources. A practical personal finance book that grapples with our emotional responses to money in a consumer-dominated society is Eric Tyson's Mind Over Money: Your Path to Wealth and Happiness. Another book I've found valuable isn't directly focused on managing money, but its thought provoking along the lines of your question. It's Stumbling on Happiness by Daniel Gilbert. A Harvard psychologist, Gilbert's book is a quirky exploration of our imaginations. He confronts the issue of we do so many things that don't make us happy and pass on the things that do. Hmmm, maybe I should take it off my book shelf and re-read it...

09/02/09 by Chris Farrell

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