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 ꧅individual.

Donor-advised funds can democratize philanthropy by aggregating the contributions of multiple donors, thus multi🎶plying their impact on worthy causes.

Donor-advised funds also have𓃲 abundant tax advantag🍷es.

How a Donor-Advised Fund Works

Donor-advised funds have become increasingly popular, 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, donor-advised fundholders enjoy a federal income tax deduction of up t🧸o 60% of adjusted gross income (AG൩I) for cash contributions and up to 30% of AGI for the appreciated securities they donate.

Donors to these funds can contribute cash, sto𝓀ck shares, and other assets.

When they transfer assets such as 澳洲幸运5开奖号码历史查询:limited-partnership interests, they can avoid 澳洲幸运5开奖号码历史查询:capital gains taxes and receive immediate 澳洲幸运5开奖号码历史查询: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 includi🍨ng the Covid-19 pandemic and occasional stock market setbacks. 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 several different types✱ of donor-ad🗹vised-fund sponsors from which to choose.

Community Foundations

These organizations were pioneers in donor-advised funds, the first to offer alternatives to conventional checkbook giving and the complications of creatin꧙g a private foundation.

Community foundations appeal to donors interested in supporting local causes. They employ staff that is knowledgeable about local ch👍aritable 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 fundholders 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.

Other public charities, such as universities and hospitals, establish donor-advised funds within the walls of their respective organizations to advance their own chari♓table missions.♍

Allowed Investments

Many donor-advised funds accept non-cash assets—such asꦫ 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 wriꩲte-offs.

Example of a Donor-Advised Fund

One of the national organizations mentioned above, F♊idelity Charitable, calls its fund the🦋 Giving Account.

Your dona💮tion to it is tax deductible, you don’t need to maintain a minimum balance, anꦚd you 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开奖号码历史查询: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开奖号码历史查询:C corporation stocks, as well as non-publicly traded assets, such as 澳洲幸运5开奖号码历史查询:restricted stock, life insurance, and 澳洲幸运5开奖号码历史查询:cryptocurrencies.

Advantages an♔d Disadvantages of Donor-Advised Funds

Advantages

A big 澳洲幸运5开奖号码历史查询:advantage of donor-advised funds lies in the immediate tax benefits. Whether you choose to disburse the assets to an approved charity at the ti🅘me 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 the ac𒐪count 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 tha🍸t you can write off the fair market value of the stock, which may be larger than your original cash basis, thus minimizing or eliminating capital gains tax.

Disadvantages

Because you receive the tax 🌟benefit immediately, your contribution is irrevocable. The assets cannot be returned to you for any reason.

Furthermore, although you can make suggestions as to which ✤charities you would like to receive your distributed assets,✃ the broker has the final say.

A common criticism of donor-advised funds is that donations c💦an sit in the fund indefinitely. There is no deadline for wh🌸en the assets must be disbursed to charities.

In addi𝐆tion, there can be fees attached to donor-advised funds 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开奖号码历史查询:cost basis, meaning the price at which they were purchased. Any sale after an appreciation in their pri🌺ces 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.

Managing a donor-advised fund also can be lucrative fo🌺r financial services corporations because they can𒈔 charge fees.

Donor-Advised Funds vs. Private Foundations

A private foundation is a charitable organization created by an individual, family, or corporation. Both private foundations and donor-advised funds are charitabl🐠e-giving vehicles; however, private foundations have much stricter tax laws and regulations governing 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

Co🌃ntributing 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 fund those causes.

There also are plenty of tax benefits for the p🌊erson or family that is making the contrꦜibution.

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.