Donor Advised Funds

Donor-advised funds are personal philanthropic funds created in the donor’s name in order to maintain charitable contributions in support of nonprofit organizations. There are currently over 36,000 donor-advised fund accounts, all of which are regulated by IRS rules. Structured like a public charity, the donor advised fund is simpler than a private foundation in terms of expenses and legal implications. The donor or designee of the donor may advise the charity about investments, grant recipients and amount and timing of grants, while the charity has legal control over these decisions. A professional manager usually manages the fund investments.

Organizations which receive funds must be not-for-profit organizations that are approved by the IRS, and organizations which offer donor-advised funds include

• community foundations, which usually provide grants for a specific geographical area
• national donor-advised funds, such as those offered by Vanguard and Charles Schwab, which accept and distribute funds nationwide
• colleges and universities, which benefit the college from alumni contributions
• “umbrella” groups, such as the United Way, which allow donors to select from a large variety of organizations.

The following requirements apply to most donor-advised funds:

• You may contribute only gifts of investable assets, such as cash, stocks, bonds, and mutual funds.
• You may NOT contribute antiques, real estate, or automobiles.
• Your contributions are irrevocable.
• You may choose investment accounts within mutual funds for growth, asset allocation, or kind of risk.
• You may take a tax deduction in the year you make any donation to the fund.
• You may defer making a donation for months or years, though the charitable organizations do encourage regular contributions.
• The fund must confirm the tax-exempt status of the recipient organization.
• Your children may be named as successor advisers to the fund.
• You may not receive any “perks” or benefit as a result of your grant suggestions.
• The donor-advised fund must distribute some portion of its assets each year.
• Distributions from the fund may be anonymous.
• You may name multiple charities as grant recipients.

Finally, when choosing a donor-advised fund, you may wish to consider:

• Fees: Commissions and fees will be different from one organization to another. Though you do not usually have to pay management fees out-of-pocket, they will be taken out of your fund.
• Expertise: Make sure that the manager of the fund is financially experienced. Your donor-advised fund should also take the time to research your choices of charitable organization to ensure that it meets legal restrictions.
• Investment Choices: The donor-advised fund you select should offer investment choices which cover the spectrum of risk and return.
• Efficiency: Choose a donor-advised fund that quickly carries out your instructions for donations so that your year-end contributions will be tax deductible for that year.