There’s a unique tool you can use to meet your charitable goals – and you don’t have to be wealthy. It’s a Donor- Advised Fund.
One way to think about a donor-advised fund is as a tax-advantaged, charitable investment account. The money, once donated to a fund, grows tax-free in investments until it goes to the donor’s selected nonprofits. It’s a charitable tool for everyday people.
Donor- advised funds serve as an opportunity for people to pursue their philanthropy and to gain the benefit of a community foundation’s expertise and experience in helping to guide their giving.
In 2010, about 4 percent of all charitable giving was to donor- advised funds. Today, that figure is nearing 25 percent.
Why? A donor-advised fund is a philanthropic tool with lots of uses. Once established, the donor can remain involved in supporting the causes and issues they care about by providing grant recommendations from the Fund. Donors may also involve family members or other individuals to serve as advisors to the fund, but the administering institution oversees the investment management and distributes the grants.
What donors love about these funds is the immediate tax deduction on the full amount donated, but there’s a much longer time horizon on when the funds must be distributed to charity: make a donation when it suits your financial timetable, but grant out to charity at a later date.
Donor-advised funds are commonly created with cash donations but can be established with most assets – even real estate. When appreciated stock is used, capital gains aren’t taxed when the stock is donated to a donor-advised fund. At the Community Foundation of the Texas Hill Country, 30 percent of its charitable funds are donor-Advised Funds. Yet, in a given year, close to 60 percent of the Community Foundation’s grants come from these funds. Donor-advised funds are popular because: 1. It’s easy. A donation and a signed fund agreement is all that’s needed to create one. Making grants is equally easy: a phone call, email, or an online submission.
2. The timing works. With a Donor- advised fund, you make the gift when you want to receive a tax benefit, sell a property, or donate stock; however, grant distributions can be made on a different schedule at a later date.
3. They grow. Donor-advised funds are invested with the Community Foundation, so they grow and there’s more money to give away!4. It can be a stepping stone for an estate gift. Donor-advised funds are a great vehicle to receive distributions from an estate plan. This arrangement is popular with Hill Country philanthropists.
When you think about your approach to philanthropy, a donor-advised fund might make sense for you. National firms – like Charles Schwab, Vanguard, and Fidelity – offer the service as well as more local institutions, like community foundations. It’s an exceptional way to give where you live.
Austin Dickson is Chief Executive Officer of the Community Foundation of the Texas Hill Country, which works with donors and support nonprofits in Kendall County. Contact him at austin@communityfoundation. net.
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