Consider whether setting up and giving to a donor advised fund helps build a more generous world
November brings us Thanksgiving – a day for simply giving thanks. The 11th month also brings us Black Friday and Cyber Monday – two days encouraging us to shop.
And since 2012, the Tuesday after Thanksgiving also offers us #GivingTuesday, where we can come together for one common purpose: to celebrate generosity and to give back.
According to GivingTuesday.org, approximately $400 million was raised online during last year’s Giving Tuesday, with approximately $125 million raised on Facebook alone. While the average online gift last year was about $105, there are other vehicles that can help jump-start your generosity, like donor advised funds.
Donor Advised Funds For Giving
Giving frequent donations to charities is not easy. Paperwork headaches, particularly related to taxes, abound. A popular alternative may make a lot of sense: the donor advised fund.
It is an account, maintained and operated by an umbrella nonprofit group, called a 501(c)(3) organization, set up by sponsoring organizations. You can open an account and give it any name you want, such as the “John and Jane Doe Foundation.”
You don’t have the expense and hassle of running a real foundation, which is the province of the wealthy anyway. Then, as the donor to the fund, you make contributions into your account. There is often a minimum contribution amount, such as $5,000 with Charles Schwab.
But because the Internal Revenue Service does not audit these accounts as it would a private foundation, they don’t have a separate tax ID or requirement to file a Form 990, as is the case with a private foundation. Contributions to these accounts are irrevocable. The account must ultimately distribute funds to a charity.
However, with a donor advised fund, you as the donor advise the sponsoring organization on how to distribute the money and how to invest it in the meantime. You can typically invest the money into one of several funds. It also usually charges a low asset-based fee to cover administration costs. As the fund’s advisor, you may direct the sponsoring organization to make specific donations to charities of your own choosing. There is often a minimum donation amount from your fund, but it is reasonable, and can be as low as $250 per grant.
In addition, you may also choose successor advisors who make those recommendations when you can’t because of illness, disability or death. This can be a fantastic tool in teaching your children the value of making gifts.
Because your contribution to your donor advised fund is an irrevocable gift to a 501(c)(3) supporting organization, you get full access to the standard charitable tax deduction. The deduction amount that you claim is limited by the type of asset you contribute and your adjusted gross income. And the charitable deduction is earned in the year you make a contribution to your donor advised fund – not when you advise the sponsoring organization to send money to one of your favorite charities.
Benefits of Donor Advised Funds
There are many benefits to using a donor advised fund over the traditional “checkbook charity” approach:
- You can separate your grant making from the end-of-year deadline for getting a deduction in. For calendar year tax planning, you need only time your contributions into the fund (along with taking your possibly limited charitable deduction). After that, you make grants at your leisure.
- You no longer have to track your grant donations. The sponsoring organization will do that for you – and generally make those grant records available online.
- As part of your grant making, you can specify whether the grant is anonymous or not.
- Your sponsoring organization will check if the entity you’d like to donate to is eligible. That further simplifies your responsibilities in making charitable donations.
If you are the kind of person who recognizes that your accomplishments rest on the good others have done in this world– and you’d like to “give back” in an efficient and practical way – then a donor advised fund might be your ticket.
At Patriot, we have plenty of experience seting up these accounts through Charles Schwab. Contact us if you are interested in setting up a Donor Advised Fund. #GivingTuesday