Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions

You may have noticed articles about donor-advised charitable funds in the financial press. Also, some of the big investment houses promote affiliated donor-advised funds. Because they provide an alternative means for contributing funds to charity, we thought you might be interested in the concept.

A major disadvantage of donations made to public charities is your lack of control over when and how your contributions will be spent. Donor-advised funds address this concern by allowing you to set up your own charitable giving fund (“The [Your Name] Charitable Fund”) in the form of an account. You can then recommend how the money in your account should be spent by designating your favorite tax exempt public charities, how much they should receive, and when. (The fund legally can reject your recommendation, but rarely will unless you name a charity that is not qualified to receive tax deductible charitable contributions.)

Some funds allow you to recommend distributions to specific charities in amounts as small as $250. Some donor advised funds may also allow you to name a successor adviser for your account who can continue to recommend how your contributions are spent. Preferably, the successor adviser can name yet another successor adviser to follow in his or her footsteps. In this way, control over how your contributions are used continues indefinitely.

Donor-advised funds are tax exempt public charities that offer important tax advantages. Your contributions are tax-deductible immediately—even though the fund may actually distribute your money to recommended charities over a number of years and your contribution may occur at year-end. So, you can get a tax deduction when you need it, while actual payouts from your account can be deferred until later, allowing the account to hopefully grow in the meantime. Contributions also reduce the value of your estate.

If you contribute appreciated stock or mutual fund shares that you have owned for more than one year, you can deduct their full current market value. You avoid any capital gains tax on the appreciation. In contrast, many small public charities are not equipped to accept contributions of appreciated securities, which eliminates a major tax advantage for you.

Minimum initial contributions are around $10,000 to $50,000, depending on the fund. Later contributions can be made in smaller amounts. After your contribution is made, the fund handles all the administrative aspects. Until the contribution principal is spent, it earns income and can continue to grow tax-free. Funds associated with brokerage houses normally allow you to designate how your undistributed contributions are invested by offering several investment pools containing various mutual fund alternatives. This gives you an additional element of control.

A donor-advised fund will charge an annual fee based on a percentage of your account balance to manage the account’s investments. In addition, funds usually charge another fee to cover other administrative and marketing costs, including any commissions paid to brokers.

Donor-advised funds offer a nice package of advantages for charitably inclined individuals who wish to contribute substantial sums (but not so large that the expense and effort of setting up a private foundation are justified).

If you have questions or want more information on donor-advised funds, please give us a call. We welcome the opportunity to help you put together a charitable giving plan that suits your goals.