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Donor advised fund explained

You may believe that in order to have your own family charitable fund you need to have a last name like Gates or Rockefeller. This is not the case at all. In the United States, over $390 billion is given each year for religious, education, human services, health, arts and other causes that donors are passionate about. Most of these donations are given directly by individuals, but with higher standard deductions, a stronger US economy and families looking to leave a legacy, a new process in giving is taking hold - the donor advised fund.

A donor advised fund is a charitable investment account that provides a simple, flexible and efficient way to manage your charitable giving. Contributions to the account are immediately tax deductible, the funds are invested and grants can be created to fund other 501(c)(3) organizations, all directed by the family. There is usually a minimum of $10,000 to open a fund. Cash contributions, stock transfers, life insurance and real estate can be contributed to the fund and are also tax deductible.

Tax Benefit

The main purpose for a donor advised fund is the tax deduction that the donor receives. If there has been a liquidity event and you want to make a donation to reduce your tax burden, but you have not picked out an organization to donate to, or maybe you are not comfortable with donating all at once. Setting up a donor advised fund allows you to take an immediate tax deduction while deferring the actual gift until a later date.

Another advantage for donating is to place highly appreciated assets, that would be hit with capital gains tax if sold, into the donor advised fund instead. You get the market value tax deduction and the sale of the asset is not taxed.

Legacy 

If you are interested in building a donation to leave once you are gone, a donor advised fund may be right for you. Using the donor advised fund, you can invest the proceeds to build for a gift into the future.

Families members can contribute throughout the year to the fund. This gives the family a sense of purpose, involves children in the giving process and works much like a family mission statement, as the family works together toward a common cause.

Go Build It

There are many companies offering donor advised funds. A custodian such as TD Ameritrade, Fidelity or Charles Schwab will hold the funds and the 501(c)(3) is managed by companies such as the American Endowment Foundation, AEF. Normal fund fees apply plus an administrative fee charged by AEF and similar companies.

If you would like more information about donor advised funds, please reach out to us at [email protected].

Posted January 20, 2020

Wiser Wealth Management, Inc. is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.

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