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7 simple steps to wise charitable giving

Art Taylor well understands how donors might feel overwhelmed by charitable appeals at this time of year. Roughly one-quarter of all charitable gifts are made in just the final six weeks of any given year -- likely the result of holiday spirit and the need to give before year-end for tax purposes. So, philanthropic organizations go into overdrive during the holiday season, shooting out millions of pleas for help.

They're tough to ignore, Taylor added. In fact, an increasing number are using the "reciprocity principal" -- sending little gifts of greeting cards or mailing labels, for instance -- to make donors feel compelled to give something back.

"You would be surprised at the number of people who feel obligated," said Taylor, president and chief executive of the Better Business Bureau's Wise Giving Alliance. "Some donors almost treat these appeals like an invoice."

While many of the organizations sending out pitches at this time of year may be worthy, it makes no sense to be pressured to donate, experts contend. Indeed, the wisest way to give is to follow these seven tips.

1. Create a mission statement. Almost everyone has a cause that's close to their heart, often because of a personal experience. Taylor likes giving to YCMAs partly because they played an important role in his upbringing. Eileen Heisman, president and chief executive of the National Philanthropic Trust has a soft spot for arts education because she knows it's often cut when schools trim their budgets.

Others might give to charities that fight a disease that affected a friend of family member, that feed or shelter the homeless, give aid to animals or perhaps to international charities that aim to improve the lot of, say, women or children in foreign countries.

The first step in becoming an effective donor is to identify the causes that are nearest and dearest to your heart and make them the cornerstone of your charitable giving, said Amy Danforth, president of Fidelity Charitable. Be specific, she suggested. If you want to give to cancer-fighting groups, decide whether you want to give to those that attempt to find cures, care for cancer patients, help families with medical expenses or simply attempt to raise awareness.

With more than 1 million charities to choose from, you can likely find a group that not only addresses your cause, but addresses the specific issue within that cause that most touches your heart. A mission statement -- or even just a list of specific goals -- can help you winnow down the long list of potential candidates to the relative handful that you can investigate further.

2. Investigate your options. Once you select the cause or causes that you want to support, start doing some spade work to figure out what organizations address these needs the most efficiently. If you're giving to large national organizations, charity rating sites such as Charity Navigator, Guidestar and can help.

Indeed, Charity Navigator recently published a listing of the highest- and lowest-rated charities by the need they aim to address, from advocacy and animal rights to universities and zoos. Those who prefer to have data in writing can get a free copy of Wise Giving, which includes all 1,400 charities that the Wise Giving Alliance evaluates.

Each of these organizations looks at a variety of criteria, ranging from how much the charity spends on programs to how transparent it is with its finances and operations. That can provide a shortcut to doing the research on national and international charities that you may be considering.

However, if you aim to help a smaller local group, you may need to do the research yourself. On the bright side, most organizations now post their financial data on their websites. Legitimate organizations that don't are happy to point you to where you can find it, said Taylor.

Then, too, local groups also are typically happy to talk to prospective donors in person or on the phone, give tours of their operations and otherwise educate you about what they do and how they measure their effectiveness. If an organization is reluctant to share financial reports or explain how it tracks its effectiveness, walk away.

3. Beware telemarketers. Although viable charities occasionally will solicit donations through telemarketers, it's not uncommon for phone solicitors to retain the vast majority of the donations that they bring in. If you're contacted by phone, ask if the solicitor is a paid fundraiser. If so, how much of your donation goes to the charity and how much goes to expenses?

Ideally, get that information in writing. If the group won't provide it, consider it a sign that you wouldn't like the answers. And know that the harder the telemarketer pushes to get you to donate before receiving the relevant information, the more likely you're dealing with a scam artist rather than a legitimate charity.

4. Give more to less. Diversification works well when you're investing in the stock market but not when you're investing in a charity, said Sandra Miniutti, vice president and chief financial officer of Charity Navigator. Giving bigger gifts to fewer organizations does two good things. It gives you the time to thoroughly investigate the organization you're giving to, and it gives the organization the ability to do less fundraising per donated dollar. That makes it easier for the charity to keep its operating costs low and focus on providing programs, rather than beating the bushes for new funding.

An added bonus is that although charities often share the names and addresses of their small donors, they closely guard information about their big donors so they don't lose you to another organization. That can reduce the number of appeals in your mail box.

5. Volunteer. One way to learn a great deal about how well an organization runs and serves its constituents is to volunteer. Whether you're answering phones, running errands, delivering services or fundraising, the more you do with the organization, the more you'll know about whether it's worthy of your precious charitable dollars. Volunteers also help reduce a charity's costs, allowing it to spend more money on programs rather than staff.

6. Be loyal. Once you've found a charity that you want to support, stick with it, suggested National Philanthropic Trust's Heisman. Charities that have large regular donors are better able to do the strategic planning necessary to be more effective in delivering their services, she said.

7. Be tax smart. If you're an investor who likes to make large donations, consider giving appreciated securities rather than cash. This allows you to deduct the full market value of the donation, without paying capital gains taxes on the profit. The charity, meanwhile, is tax-exempt and able to sell the shares without giving a piece to Uncle Sam.

But what if you haven't figured out what organizations you want to support before year-end? Consider using a donor-advised fund. Contributions to these funds are fully deductible the day they're made -- and can be made in either cash or stock. You can then take your time deciding how to divvy up the funds among causes you care about.

Indeed, Fidelity's Danforth said they get a lot of pre-retirees who are paying into charitable accounts now as a way of pre-funding contributions that they imagine they'd otherwise be unable to afford when they're retired. Minimum investment requirements can lock out small donors, but Fidelity opens accounts with as little as $5,000.

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