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Plan for year-end charitable donations

It might be the holiday spirit or just thoughts about next spring's income-tax bill, but lots of people start feeling charitable as the end of the year approaches. If you are thinking of gathering a few more charitable deductions before 2003 expires, start planning now. Not only will you avoid the last-minute rush, you may be able to get more benefit for your buck.

Unless you already know where you want your money to go, spend some time thinking about what would make your neighborhood or the world a better place. Popular charitable categories include education, religion, arts and culture, human services, medicine and the environment. Which appeals to you?

Find out the names of organizations doing good work in your area of interest by asking leaders in your community and friends who do volunteer work. Then check out their recommendations by logging onto www.guidestar.org. This Web site offers information about charities' finances, mission, accomplishments and leadership.

Contact the charities you like best and ask for information about their giving options. All charities take cash, of course, but some have special programs to encourage larger gifts. For example, some offer charitable gift annuities that pay a monthly income for life. Because you get back a benefit, you only get a partial income tax deduction. However, this might be a good choice if you need to generate income from your assets. Charitable trusts can also be designed to meet specific income or estate-planning goals.

Look at your stock portfolio as a potential source for gifts. By giving away stocks that have appreciated in value, you avoid paying capital gains taxes and still get the full market value as a charitable deduction. If your stocks have declined in value, sell them and give the charity the proceeds. You can use the capital loss on your income tax return.

Paid-up life insurance policies, real estate and valuable art works are less conventional gifts that some charities may be equipped to accept. Be sure to ask the charity before transferring ownership.

Instead of giving directly to charity, you might consider giving to a community foundation or one of the charitable gift funds available at large mutual fund companies and brokerage firms. You can get a charitable deduction upfront for your gift, then spread payments to charities over a period of years if you like.

Q. My inlaws, who are in their late 60s, live in a motor home that's worth less than what they owe on the loan. Although they receive a nice pension and Social Security, they are struggling because of the increase in gas prices. They've cashed out all their stocks to live on and are ill-prepared for an emergency. Would it be advantageous to sell the motor home for a loss and start over in a condo or something that is a fixed payment and not contingent on gas prices and travel expenses?

The increase in the price of gas is only part of the reason your inlaws are struggling. The underlying problem is their failure to adequately save for the retirement lifestyle they envisioned. Eventually they will have to face reality, although that may not be until the motor home breaks down on the road and they don't have a dime in the bank or access to any more credit.

Financially prudent people have all sorts of different housing arrangements. What they have in common is that they spend less than their income and keep a financial cushion for emergencies and unexpected expenses. Housing costs are never truly "fixed," as any homeowner knows. You can help by collecting information about potential options, but ultimately, it is your inlaws who have to be motivated to change their lifestyle. It's not easy to give up on a dream, however unrealistic it might be.

Q. What is a reasonable expense ratio to pay on a mutual fund?

Avoid any fund with annual expenses above the average, which is 1.57 percent for stock funds and 1.09 percent for bond funds. What I consider "reasonable" is lower than that. I wouldn't pay an expense ratio of more than 1 percent for a stock fund or 0.75 percent for a bond fund unless I really believed the manager had something special to offer that I couldn't get elsewhere for less. If you are buying an index fund, expenses should be even lower. The Vanguard funds set the standard in that department.

_ Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.

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