Giving made easy with donor-advised funds

added by Tivix Team

Individuals with a commitment to philanthropy and a significant capacity to give are increasingly opting for the ease and flexibility of donor-advised funds, instead of setting up a family foundation.

Donor-advised funds are vehicles for individual giving that are administered by third party investment advisors. They typically can be established at no cost and require a minimum initial deposit of "only" $25,000 as opposed to at least $500,000 to start a family foundation. What's more, while family foundations are required by law to distribute at least 5% of their net asset value every year, the only distribution requirement of a donor-advised fund is just one $250 grant every three years.

Even the most generous philanthropists may benefit from these more lenient giving requirements if they dislike having to give on deadline, at the end of the year, and prefer to save their cash for when they identify the right opportunity. At a time when philanthropists are getting more creative, identifying little known causes rather than just writing a check to the city orchestra or the local homeless shelter, it may make sense to seek an investment vehicle that lets you give on your terms.

Because donor-advised funds are administered by third parties, there are virtually no administrative costs or duties imposed on the donor. And unlike family foundations, which are required to file public tax returns every year, disclosing all the grants made, donor-advised funds keep donor names and the grants they make confidential.

This confidentiality can be useful for families whose members have opposing philosophies about charitable giving. Investment advisors also note that setting up a donor-advised fund, even if there is already a foundation in place, can be a good way for a family to train the next generation to make informed decisions about giving, by letting them start out with grants of just a few hundred dollars.

Donor-advised funds are eligible for larger federal tax deductions than family foundations, and may be particularly advantageous if there are real estate assets in the fund. While family foundations value real estate contributions at the price for which they were acquired, even if they've been in a family for many generations, donor-advised funds assign real estate holdings a fair market value, providing the potential for much greater tax deductions.

Donor-advised funds are not without their drawbacks. Unlike family foundations, they can't be used to make donations to individuals and are not always allowed to be used to fund scholarship programs. (Such distributions are decided on a case-by-case basis). Still, for individual or family donors that don't like being hemmed in by annual giving restrictions, donor-advised funds will open up a lot more options for when and where to give.