What Is a Donor-Advised Fund?

A donor-advised fund is a private account created to manage and distribute charitable donations on behalf of an organization, family, or in𒅌dividual.

Donor-advised funds can democratize philanthropy by aggregating the contributions of multiple donors, thus multiplying their impa🅰ct on worthy causes.

D𒁏onor-ad🐲vised funds also have abundant tax advantages.

How a Donor-Advised Fund Works

Donor-advised funds have become increasiꦿngly popu🍸lar, as they offer the donor greater ease of administration while still allowing them to maintain significant control over the placement and distribution of charitable gifts.

Unlike private foundations, donꦯor-ad🐬vised fundholders enjoy a federal income tax deduction of up to 60% of adjusted gross income (AGI) for cash contributions and up to 30% of AGI for the appreciated securities they donate.

Donors to these funಞds can contribute cash, stock shares, and other 🔜assets.

When they transfer assets such as 澳洲幸运5官方开奖结果体彩网:limited-partnership interests, they can avoid 澳洲幸运5官方开奖结果体彩网:capital gains taxes and receive immediate 澳洲幸运5官方开奖结果体彩网:fair market value tax deductions.

According to the National Philanthropic Trust’s 2023 Donor-Advised Fund Report, these funds have continued to grow in recent years, despite some headwinds including the Covid-19 pandemic and occasional stock market setbಌacks.🅺 Total grants awarded by donor-advised funds in 2022 increased by 9% to $52.16 billion, while total contributions rose by 9% to $85.5 billion.

Types of Donor-Advised-Fund Sponsors

There are severꦡal different types of donor-advised-fund sponsors from which to choose.

Community Foundations

These organiza🗹tions were pioneers in donor-advised funds, the first to offer alternatives to conventional checkbook giving and the complications of 🅺creating a private foundation.

Community foundations appeal to donors interested 🌊in supporting local causes. They employ 🍎staff that is knowledgeable about local charitable initiatives.

National Donor-Advised Fund Organizations

A number of these national organizations are the charitable arms of for-profit financial services companies. They include the Vanguard Charitable Endowment Program, the Schwab Charitable Fund, and the Fidelity Giving Account.

Other national donor-advised-fund sponsors are independent. These include the American Endowment Foundation and the National Philanthropic Trust.

Public Foundations

Public foundations support national and international charities that focus on a particular issue or geographic region. The personnel of public foundations personnel often have specific expertise to help donor-advised fundholder♔s find causes that matter to them.

For example, the Peace Development Fund houses donor-advised funds for individuals who care about creating systemic social change throughout the Americas.

Otဣher public charities, such as universities and hospitals, establish donor-advised funds within the walls of their respective organizations to advance their own charitable missions.

Allowed Investments

Many donor-advised funds﷽ 🐽accept non-cash assets—such as checks, wire transfers, and cash positions from a brokerage account—in addition to cash and cash equivalents.

Donating non-cash assets may be more bene✤ficial for individuals and businesses, leading to bigger tax bigger write-🐠offs.

Example of a Donor-Advised Fund

One of the national organizations mentioned above, Fidelity Cha🌌ritable, calls its fund the Giving Account.

Your donation to it is tax deductible, you don’t need to maintain a minimum balance, and y🥀ou don’t have to be a Fidelity Investments customer to contribute to it.

You can set up recurring donations to your favorite charities, from local to international. The money in your account is invested based on your wishes and grows tax-free until you decide to 澳洲幸运5官方开奖结果体彩网:give it away. Of course, it also can shrink if your investments aren’t profitable.

In addition to cash donations, Fidelity accepts stocks, mutual funds, bonds, assets such as private S and 澳洲幸运5官方开奖结果体彩网:C corporation stocks, as well as non-publicly traded assets, such as 澳洲幸运5官方开奖结果体彩网:restricted stock, life insurance, and 澳洲幸运5官方开奖结果体彩网:cryptocurrencies.

Advantages and Disaﷺdvantages of Donor-Adv✱ised Funds

Advantages

A big 澳洲幸运5官方开奖结果体彩网:advantage of donor-advised funds lies in the immediate ඣtax benefits. Whether you choose to disburse the assets t♔o an approved charity at the time you make the contribution or let the assets grow tax-free, you still receive a tax benefit immediately.

You also receive full control over how the𝕴 account is managed.

Another benefit of choosing a donor-advised fund over a traditional charity is that donor-advised funds can accept non-cash assets. This means that you can write off the fair market value of the stoc꧃k, which may be larger than your original cash basis, thus minimizing or eliminating capital gains tax.

Disadvantages

Because you receive the tax bene💮fit immediately, your contribution is irrevocable. The assets cannot ꦯbe returned to you for any reason.

Furthermore, although you can make suggestions as to which charities you would like to receive your distributed asset📖s, the broker has the final🤪 say.

A common criticism of donor-advised funds is that donations can sit in the fund indefinitely. There is no deadline for when the ಞassets must be disbursed to charities.

In addition, there 🐭can be fees attached to donor-advised fun🐻ds and some set a minimum donation.

Criticisms of Donor-Advised Funds

Criticisms of donor-advised funds have mostly centered on the fact that they can become placeholders for money and assets and are set up to help wealthy individuals score tax advantages. They have been called “philanthropic fracking” and accused of “warehousing wealth.”

Though private foundations are required to pay out 5% of their overall holdings annually, there are no such restrictions for donor-advised funds.

Most of the assets in prominent donor-advised funds are intangible and illiquid complex assets, such as real estate, Bitcoin, and art. They are valued on a 澳洲幸运5官方开奖结果体彩网:cost basis, meaning the price at which they were purchased. Any🌼 sale after an appreciation in their prices would incur a capital gains tax.

By holding these assets in donor-advised funds where there are no restrictions on the holding period for sale, the donors can ensure that the asset, when it is sold by the foundation running the donor-advised fund, is not subject to tax. An appraisal before donation also provides the owner with considerable tax deductions because the complex asset is appraised at fair market value.

Manag💟ing a donor-advised fuꩲnd also can be lucrative for financial services corporations because they can charge fees.

Donor-Advised Funds vs. Private Foundations

A private foundation꧒ is a charitable organization created by an individual, family, or corporation. Both private foundations and donor-advised funds are charitable-giving vehicles; however, private foundations have much stricter tax laws and regulations gꩲoverning their actions.

Compared with donor-advised funds, private foundations have greater administrative control over assets and making grants, including the ability to make grants to organizations other than IRS-qualified, 501(c)(3) public charities.

There are two types of private foundations: Operating foundations are directly involved in administrating a charity campaign for a specific project or area of need, while a non-operating foundation simply gives grants to various charities.

The Bottom Line

Contributing to a donor-advised fund is one way to turbo-charge your impact on the causes that are important💦 to you. Your money will be combined with those of many others to fu൩nd those causes.

There also are plenty of tax benef𒊎its for the person or family that is making the contribution.

Critics are concerned that donor-advised funds are "warehousing" the wealth of the super-rich. Instead of contributing directly to a worthy cause, they are contributing to a donor-advised fund. That gives them an immediate tax benefit but the money can stay in the fund indefinitely rather than being used for a charitable cause.