Donor Advised Funds

Answer 1

You may not have pockets deep enough to set up your own private foundation but that doesn’t mean you can’t pursue philanthropic strategies. One tool that makes doing good easy for those who’ve done well financially is the donor advised fund. Setup is easy. Administration is much easier and cheaper than a foundation. But benefits run deep you’re still able to contribute funds to various charitable causes and perhaps teach the next generation a thing or two about responsible financial management. You’ll need to contact a financial advisor in order to get a donor advised fund set up.

When you make a donation to a donor advised fund you receive a tax benefit at the time of the gift. That’s because the administration of the fund is done by a public charity, and the benefit of the gift will be only used for charitable purposes. The gift can be made in the form of cash, though there are additional tax benefits to gifting appreciated stocks. If you have highly-appreciated stocks lying around and would like to make a sizable charitable contribution, though you may not be sure to which charities you want this contribution to go at this time, you may be a great candidate for a donor advised fund.

Once set up the fund will be administered by the public charity and will distribute funds to other public charities according to your instructions. Keep in mind that the public charity has a fiduciary responsibility to perform due diligence on any charities you direct payments to. They must give final approval of your recommendations, however, as long as the charity isn’t shady and the money isn’t somehow benefiting you or your family directly you shouldn’t have to worry about the administrators not taking your recommendations.

So if you want to give something back without giving up total autonomy over what happens to your charitable dollars, a donor advised fund may be the way to go.