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Donor advised funds

Another method of donating to charity in a tax favored way is the donor-advised fund.  A donor-advised fund qualifies as a tax-exempt charity and therefore money can be placed in these accounts for an immediate income tax deduction.

These funds can grow tax free and then be directed to specific charities at a later date.

Donor-advised funds have been around since the 1930’s and have been established by community foundations and other non-profit organizations since that time.  Today these funds are growing in popularity and are now offered by financial institutions and all the major money management firms such as Vanguard, Fidelity and Charles Schwab to name a few.

Now for some caveats:  In exchange for the tax deduction, the donor loses control of these funds once the donor-advised fund is established.  In other words, the choice to contribute to these funds is irrevocable.  You or other co-advisors such as family members may still recommend grants (this is the “donor-advised” part).  The fund manager will generally comply with the owner’s advice but they are not legally obligated to do so.  Fees and costs are usually charged by the fund manager based on the amount of assets in the account.

In summary, donor-advised funds provide many benefits:

  • Immediate tax deduction
  • Tax-free growth
  • No annual payout requirements
  • No time restrictions for making donations
  • Simplicity of operation and professionally managed accounts

A donor-advised fund is an excellent vehicle for conducting your philanthropic goals while securing a tax deduction for yourself.  It is a lower cost and much simpler alternative to establishing a private foundation and an easy and flexible way to make charitable grants to the organizations that you want to support.

 

David K. Raye, CPA, P.C.

704-887-5298

www.davidrayecpa.com

 

*The information in this blog post is general in nature and not intended as specific advice.  Please consult a tax advisor to see how this information applies to your specific situation. 

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