Building Estates on a Charitable Foundation

By , Staff writer of The Christian Science Monitor

Q. I'm a retired teacher approaching 73. I wish to begin to make available to my children the inheritance of my modest assets, under $500,000. I also want to set up a small charitable foundation which we together (and my children after my death) will oversee in making small grants to worthy causes. Can I make individual gifts to my heirs with some tax advantage and at the same time reassign, say, one-fourth of my stock holdings to such a foundation?

- G.C.,

Lewisburg, Pa.

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A. "Keep it simple," says Ed Slott, a tax expert with E. Slott & Company, Rockville Centre, N.Y. "Most foundations are set up by people with millions of dollars to contribute. But there are legal costs," of at least several thousand dollars.

You also won't reap any tax benefits from setting up a foundation since estates under $625,000 pass to heirs free of federal estate taxes.

Instead, Mr. Slott suggests that you make specific bequests in your will, both to your heirs, and worthy organizations, charities or individuals. This way you retain control over your assets while you're still alive.

You also can give tax-free gifts of up to $10,000 annually to any number of persons you choose, including heirs.

Q. Our mutual funds have not performed well lately, seldom exceeding market indexes. My wife and I wonder if we might do better by buying individual stocks. What are the advantages in owning stocks?

- O.L.,

N.Y.

A."Usually it's not an either/or proposition," says Maria Crawford Scott, editor of the AAII Journal, published by the American Association of Individual Investors, Chicago. Most AAII members invest in individual stocks and mutual funds, says Ms. Scott.

If you have relatively modest assets, she suggests owning at least one mutual fund, such as a large-cap fund or an index fund. Then you could buy individual company shares from a discount broker to hold down brokerage costs.

The advantages of owning stocks is that you won't incur the annual management fees that mutual funds charge. You are also less likely to face annual capital-gains taxes that come with owning mutual funds unless you sell the stock at a profit.

Of course, many stocks can carry more risk than stock funds.

Questions about finances? Write:

Guy Halverson

The Christian Science Monitor

500 Fifth Ave., Suite 1845

New York, NY 10110

E-mail: halversong@csps.com

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