Have you considered a Donor Advised Fund?
A donor advised fund is a charitable giving vehicle that is administered
by a public charity in order to manage charitable donations on behalf of an organization, family, or individual. Unlike most planned giving alternatives, a donor-advised account has no setup costs, low ongoing expenses and no additional taxes assessed on income earned by the account.
Through this channel, even individuals with modest means (as low as $5,000) can open a donor advised account and make grants to their preferred charities. A donor advised account can be opened through most large brokerage/ investment firms such as Schwab or Fidelity. The contributions to the account are professionally managed. The donor can add to the account at any time, as well as control the timing and amount of each grant. Few charitable giving options provide the versatility and tax efficiency that donor advised funds do:
- Enjoy an immediate tax deduction - Your contributions are fully tax deductible in the year they are made.
- Donate appreciated securities tax free – When you donate appreciated securities to a donor advised fund, you may immediately deduct their fair market value from your taxes, without incurring any capital gains liability.
- Create a legacy of giving - You may name account advisors who will have the ability to recommend grants from your account. You also have the ability to select successors, who can continue your charitable legacy by recommending grants beyond your lifetime.
- Separate tax planning and charitable decisions – Immediate tax advantages through contributions can be achieved now and grants can be recommended to charities later. Donor advised funds can help eliminate the year end pressure to select a charity and make a grant.
- Record-keeping and administration made easy – Donor advised funds provide consolidated reporting and record-keeping. You will receive quarterly account statements, gift receipts and IRS-ready tax information. There is no need to hire your own attorney to draft trust documents and no need to hire a CPA to draft an individual return for your account. Most foundations that offer donor advised funds will only make grants from these funds to other public charities and will usually perform due diligence to verify the grantee’s tax-exempt status
- Confidentiality – If you prefer, your grant(s) can be made anonymously, so that your name and personal information will not be known.
Look before you leap - The IRS is aware of a number of organizations that appeared to have abused the basic concepts underlying donor advised funds. These organizations, promoted as donor-advised funds, appear to be established for the purpose of generating questionable charitable deductions, and providing impermissible economic benefits to donors and their families (including tax-sheltered investment income for the donors and management fees for promoters.)
One last consideration: Since the maximum tax deduction is received by the donor at the time of the gift, the foundation administering the fund gains full control over the contribution, granting the donor advisory status. As such, they are not legally bound to the donor, but make grants to other public charities upon the donor’s recommendation. Happy giving!
- Paul Saad, MBA is a founder of The BAR Group (an independent network of local professionals dedicated to providing a wide range of business services to small and solo law firms in Contra Costa County), he is also a Financial Advisor with Safeguard Financial. The information contained is for educational purposes only. It is not intended to be professional tax or legal advice; consult the appropriate professional regarding your specific situations
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