Q. I have about $500,000 in cash accounts from a life insurance payout. I don’t need the money for retirement or for living expenses, and I don’t have any relatives to leave it to. If I decide to give to charity, what’s the best strategy? Monthly, yearly or in a lump sum when I die? And where should the money be invested, or should I stay with cash? I’m 63.
— Giver

A. Kudos to you for considering putting your life insurance benefit toward philanthropy.

Before you start donating, we want to make sure you’re covered for your own retirement. We know you said you have enough, but do you? Make sure you can fund unexpected expenses, such as the need for long-term care. We’d hate to see you give away money that you’ll actually need someday.

But if you’ve run the projections and you’re sure you can afford to give, have at it.

There are many worthy causes and your contribution can make a meaningful impact for someone in need, said Andrew Wang, senior vice president of Runnymede Capital Management in Mendham.

He said talking to a financial advisor who can work with your attorney or tax advisor can help guide you toward the best strategy for your situation.

But in general, Wang urges you to enjoy your charitable giving during your lifetime rather than leaving it through your will as a bequest.

“Witnessing the joy in helping someone can truly be a fulfilling experience so why miss that opportunity?” he said.

Making lifetime gifts may entitle you to charitable income tax deductions, depending on your income level, Wang said.

“For those whose income level qualifies, deductions are generally allowed for up to 50 percent of the donor’s adjusted gross income (AGI) when making a cash gift to a public charity,” he said. “Making direct gifts can also lower your estate taxes by removing the cash value from your estate.”

Looking at investments for charitable non-profit organizations, most adopt a conservative asset mix designed to achieve conservative, risk-adjusted returns, Wang said.

“It makes sense because excessive volatility can negatively impact a charity’s ability to make grants that help their cause,” he said. “By seeking portfolio appreciation and income over time rather than keeping your money in cash can increase your ability to make larger charitable donations to causes that you care about.”

An increasingly popular philanthropic vehicle worth considering is a donor-advised fund, or DAF.

“It allows you, the donor, to make a charitable contribution, receive an immediate tax benefit, and subsequently advise the fund to disperse gifts to charities of your choice at your preferred pace,” he said.

Donations to a donor-advised fund are irrevocable and that gifts can only be made to IRS approved charities, Wang said.

DAFs require an initial minimum investment of at least $25,000 so you wouldn’t need to gift your entire $500,000 at once, he said. You could make contributions to a DAF over time as part of a longer-term tax planning strategy.

Wang said the assets in a donor-advised fund are typically managed by a professional investment advisory firm and can be invested while growing tax-free.

“If you research DAFs, you will find that many donors choose to set up a donor-advised fund in lieu of a private foundation because the former has less burden in terms of cost, administration, and compliance,” he said. “Finally, you can establish a legacy in perpetuity by naming successors to your fund, in your case it could be a friend, to continue gifting after you die.”

Karin Price Mueller writes the Bamboozled column for The Star-Ledger and she’s the founder of NJMoneyHelp.com. Click here to sign up for the NJMoneyHelp.com weekly e-newsletter. Like NJMoneyHelp.com on Facebook and follow it on Twitter.

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