Funds are a flexible and popular option for long-term charitable giving
A donor advised fund lets you donate stocks, investments, real estate or a variety of other assets to a sponsoring organization that holds and invests your contributions. You get an immediate tax deduction but don’t have to make an immediate decision on where or when your gifts are allocated.
Accelerate your giving
Wade Carpenter, Infinitas cofounder, said these funds are ideal for those who want to make significant charitable contributions over a long period of time but want the tax deduction now.
"You get the tax benefit on the front end when you make the gift – not when the gift or grant is made,” said Carpenter. “Donor advised funds essentially accelerate your giving.”
With proper planning, donor advised funds can accelerate the tax deduction for future giving. For example, lets say you have $100,000 you want to donate. When you gift that amount to a donor advised fund, you receive the full tax deduction this year – but don’t have to decide until later the charity it benefits, as well as when or how much the organization receives.
Another way these funds help donors is by easing the burden of the estate tax and the capital gains tax. By donating assets early, future appreciation won’t be included in your taxable estate for income, capital gains or estate taxes.
Commit to the fund
Flexibility is a key theme of donor advised funds. In addition to not having to decide which charity will receive your donation or when, you have the freedom to contribute as much and as often as you like. There are also very low minimum amounts that you have to give to a charity.
“These funds are a flexible and popular option for long-term charitable giving. You have control of who gets the money, how much they receive and when they receive it,” said Carpenter.
That said, there are two key rules associated with donor advised funds. First, the money you contribute is irrevocable. Once it’s donated, you can’t get the money back. It must also be given to a qualified charity.
Even upon death, your contribution remains in the fund. When you set up the account, you name a beneficiary and a successor to direct contributions after your death.
“You can’t get the money back, give it to a family member or to a non-qualified charity,” Carpenter said. “You have to stay committed to the donor advised fund.”
The second rule is that the fund decides how to invest your contribution. As the donor, you can make suggestions on where the assets are invested but ultimately, the fund manager decides. Your contributions grow tax-free but any income generated is part of the money that goes to charity – it’s not returned to you or your estate.
Carpenter said when you’re ready for the fund to allocate an amount to a charity, it’s typically an easy process. “Most funds let you make a request online,” he said. “They review the organization to ensure it’s a qualified charity and then they send the money directly to the organization.”
Like other investment vehicles, there are fees for donor advised funds. Carpenter said these usually fall in the .25 percent to 1 percent range for administrative costs. Plus, if you work with an advisor or financial planner, they may charge an additional asset management fee.
If you’re contemplating a one-time charitable donation, you’ll get a tax benefit for 2018, assuming you’re eligible. But, unlike a donor advised fund, your contribution isn’t invested so there’s no chance to grow your gift. Also, you can’t take an extended period of time to decide where you’ll donate the asset. With a one-time charitable contribution, you have to allocate the asset to a specific charity before year-end.
Want to learn more about donor advised funds or how to set one up to support your charitable causes? Let’s talk: [email protected].