AskDong

Just wanted to wish everyone a merry Christmas on what is a warm and sunny day in the Boston area.   I hope everyone enjoys time well spent with family and friends.   The shopping is done, and now is the time to appreciate the personal connections we have in this time of rest.

As is almost always the case every year, I’ve left quite a bit Christmas shopping until the end. As I’ve stated many a time in this blog, I’m not much of Christmas giver or recipient. I find giving gifts difficult. I think some of this has to do with my own attitude towards possessions. I’m not much of consumer, or very much into material possessions. I say this not to give myself a pat on the back, though I generally like to do that as well. My interests are almost all the in the perishable domain. I like food and I like traveling. My one Achilles heel is electronics, but even there my desire for electronic goodies has waned a great deal as I’ve gotten older. My girlfriend complains in regards to her shopping for me that, I “don’t have hobbies, don’t collect, don’t have interests.” Those are serious complaints. I’m not sure I would date me - I sound awfully dull. There must be something wrong with someone who gets his kicks from working on a personal finance blog.

Because I “want for nothing” I have a hard time shopping for others. I lack empathy. I go shopping, and look around stores, and think “why in the hell would anyone want this junk.” This is not a good Christmas shopping attitude. So I almost rarely pick out an item and think “so and so would love this!” Instead, I think “Blech, who would pay hundreds of dollars for a glob of glass.” Yeah, I’m a bit of Grinch. Still, I’m bound by obligation to buy presents (limited as they may be). So in the next couple hours I’ll venture out to the great consumer wilderness and join the throngs of last minute shoppers. I’ll try my best to pick out appropriate gifts and try to think about what other people want. I’m the exception as most people actually do have hobbies and interests.

N.B.: Those are gifts my girlfriend has wrappred. I have nothing to show so far.

I’m in the process of buying the apartment I live in. My landlord who I know personally was selling, and I decided to make him an offer, and he agreed. He was able to avoid the whole sales process, and I was able to buy a place I know I like living in at price that was fair. I imagine both of use feel like we are leaving money on the table, but that usually means the price is a fair one. Would I be better off had I waited until the market came off more? Probably. However had I not decided to buy the place, I would probably had to move. The act of moving feels like one of the inner rings of hell. I prefer to avoid it if I can, and in addition it’s not cheap. My last move set me back over $1500. If I decided to move I had no guarantee that I would find either an apartment (to purchase or rent) that would me better. The fact I was able to live in my place before I brought was a great advantage. I know exactly what I like about my place, and problems I have with it as well. This was not the case for the 1st condo I purchased.  I didn’t truly know what living in that place was like until well after the purchase and sale was signed.

Just because I’ve decided to buy doesn’t mean I think the housing rebound has begun.  I don’t.  I think we are still years away from seeing another rising housing market.  So why am I buying? Mostly because I love where I live, and want to keep living there.  This is an emotionally driven decision as many financial decisions in fact are.  At the same time, I’ve tried as best as I could to make a rational decision.  The cost difference in the 1st year of renting versus buying after accounting for both principal being paid, tax benefits, and foregone investment growth on the downpayment is minimal. This is transaction that I can both afford to make, and one that doesn’t substantively affect my cash flow.

In a victory for the Republicans, the House passed a one year patch of AMT.  As I had posted earlier, Democrats and Republicans had been at impasse.  Democrats wanted to provide AMT relief only with corresponding tax increases somewhere else, and Republicans didn’t seem to mind more debt.  It seems as the Democrats just caved.  Given that President Bush vowed to veto any bill that included a tax increase, I think the Democrats did the right thing by caving. While not an ideal solution, not doing would’ve been terrible for many American especially if gridlock is a result of politics than actual policy.

Effectively for the next year the AMT threshold is being raised to about 62,000 for joint filers from 45,000 had no fix been passed. This is not to say any joint filer who has income greater than 62,000 will fall under the jurisdiction of AMT, but rather they are just eligible to pay the Alternative Minimum Tax.  You still need to have enough deductions to “qualify” for AMT.   The factis there are still many high income earners would gladly pay 28% instead of what they pay right now.  I’m still keeping my fingers crosses that a brave congress will tackle not only the AMT issue, but put some serious thought towards tax reform.

We are in the season of giving, so in that vein I’m answering this question from a reader.

I am thinking about putting money in a Donor Advised Fund, but don’t really know what the pros and cons are of using a Donor Advised Fund versus givingn money directly to charity. What do you think?

-S

I looked into Donor Advised Funds a few years ago as vehicle for my charitible giving, but decided I didn’t have enough of idea of how I wanted to give to warrant setting up such a fund. I imagine many of you are scratching your heads just like I did a few years ago. Donor Advised Funds? A Donor Advised Fund is basically a mini foundation. It used to be purely the tool of the very rich who wanted to be like the uber rich. However Donor Advised Funds are actually relatively affordable to get into today. Fidelity let’s you open a account with the Fidelity Charitable Gift Fund with as little as $5,000. Schwab recently followed Fidelity’s lead and lowered their minimum on their Schwab Charitable Fund. from $10,000 to $5,000 as well. Vanguard lags behind both Schwab and Fidelity, requiring $25,000 to open account with the Vanguard Charitable Endowment

While the charitable funds are “run and operated” by the likes Schwab, Fidelity, and other financial institution, the accounts work very much like a standard brokerage account that you might have. You pick what funds you want to invest in, and you pick what charities you want to give gifts to. However, once the funds which can be cash, stock shares, and mutual funds are handed over, they are turned over irrevocably. The gift is made, and the money is no longer yours. This is both a minus and plus. Technically speaking the money is “owned” by the the charitable fund/endowment, and as a donor one only make recommendations for grants. One of the big benefits is that fund takes care of the paperwork of giving, and will also research different charities to make sure they meet minimum standards.

Because the gift is irrevocable, the deduction can be taken immediately. Like a standard gift of shares, the full value of securities is tax deductible. Being able to take the deduction immediately is great if you want to make a charitable gift, but haven’t decided to whom. In addition once the funds are in the account they are sheltered from any tax complications. A donor can effectively buy and sell without tax consequences to him or her personally and more importantly the money available for giving.
So what are the drawbacks to a Donor Advised Fund? The main one is that you can’t change your mind about giving. The money is gone. I don’t think this is actually a big drawback, however, as this is always the nature of giving (or at least it should be). However when most people set up Donor Advised Funds, they are often handing over money that they plan on giving for years to come. That fact highlights the major difference between giving to charity year to year and a Donor Advised Funds. Setting up Donor Advised Fund is sustained commitment to giving. It’s not a tool to be used to give gifts in any one year, but rather for a lifetime of giving. In addition there are some restrictions on grants. Grants cannot for instance be used for admittance to Galas, or used as part of personal commitment to ride or walk event. Generally speaking the limited and reasonable restrictions are in place from preventing donors from using the funds for his or her own benefit.