The charitable giving strategy we’re featuring this month is a Donor Advised Fund. This can be a current and also a future gift. It is a more complex strategy than some we’ve reviewed. It can impact both current income taxes as well as potentially reducing transfer taxes later. Sometimes, this strategy is referred to as “The Poor Man’s Foundation” and there are a couple of different ways to approach establishing a Donor Advised Fund. Many local or regional Community Foundations will offer personalized Donor Advised Funds for which they serve as administrator for the Fund established by a donor. As the poor man’s foundation terminology suggests, a Donor Advised Fund acts much like a private foundation, but can be established and maintained more simply and with a much lower financial contribution than setting up your own personal private foundation.
The other way of establishing a Donor Advised Fund is to buy into a commercial fund offered through a mutual fund company. Without showing any favoritism, some companies I’m aware of that offer this type of account are Fidelity and Eaton Vance. As always, when you are considering any planned giving strategies, you should check with licensed tax and/or legal counsel. Your own financial advisor may suggest different fund companies that offer Donor Advised Funds. When you’re putting your gift into this type of account, the fund itself is registered as a charitable entity and subject to IRS regulations. When you make your contribution, you may be eligible to claim an income tax charitable deduction. Typically, you could contribute securities, and when contributing highly-appreciated securities, you may avoid paying capital gains taxes on the gifted assets. The fund company manages your investment for you and administers your Fund. Often, you would be able to name your account “The Jon Doe Family Charitable Fund” or some such personalized name you choose. When you want to make grants from your account to the charities of your choice, you notify the fund administrators and they take care of that for you. Understand that the fund itself is a charitable entity and must follow IRS rules regarding eligible gifts that can be made from the account.
You may add to your Donor Advised Fund, thus generating another potential income tax charitable deduction. Once you make a gift to your Fund, it is a completed gift and will not be a part of your estate nor subject to potential estate taxes. You direct grants out of your Fund to the charities that are near and dear to your heart; you may change which charities you want to benefit in any given year. You may choose not to make any gifts from your Fund in a particular year. Another very nice feature of a Donor Advised Fund is that it can live on beyond your lifetime. You can designate who will “advise” the fund in the future regarding making gifts from the account. What a marvelous way to instill charitable giving habits in future generations of your family – and to establish a charitable legacy for the family.
You may want to consider a Donor Advised Fund strategy that could provide current income tax deductions whenever a gift is made into the Fund, remove the assets from your estate and potential estate taxation, possibly save on capital gains taxes, make future gifts to charity when you choose, and create an ongoing legacy that may live on beyond your lifetime. As always, NAZCCA would welcome your gift, whether current or future, in whatever amount your heart and finances dictate. You may make your donation here.
Bonnie Lane, Volunteer
Member NAZCCA Board of Directors
NAZCCA is not licensed to give legal or tax advice and any planned giving strategies you choose to pursue should be discussed with licensed tax and legal counsel