Posted by Mike Smith :: November 15, 2008 @ 10:08 amGiving some of your hard-earned money to charity is a personal decision that many Americans choose on a regular basis. In additional to feeling good about giving back, donors generally receive a tax deduction as well. In order to maximize the benefits of donations, you can use a donor-advised fund.
There are many donor-advised funds available, Fidelity’s Charitable Gift Fund or Vanguard’s Charitable Endowment Program among the more popular ones. These programs work using a three-step process.
Step 1: Donations are made into your program account rather than directly to the charity. Since you can never get the money back, and it will eventually go towards charity, you are able to take a tax deduction when you make contributions.
Step 2: You advise the program how to invest the money in your account. Each program has different investment vehicles available. You can use prearranged set-it-and-forget-it lifestyle funds or choose more customized investments as you see fit.
Step 3: You request that a portion of your account be granted to the charity of your choice. After ensuring that the destination is a qualified charity, the plan administrator makes the donation in your name.
So basically, donor-advised funds allow you to invest your charitable contributions and distribute not only the donation, but also any gains you earn on the donation. Available programs all have different requirements for initial and subsequent contributions, different fee structures, and other rules. Look into a few different programs to find the one that best matches your giving goals.
Donating directly to charities lets your contributions be used right away. By using a donor-advised fund, you delay the aid until a later date, but may be able to build a lasting legacy that continually helps those causes that are important to you. Such an arrangement may allow your fund to give much more to charity than you ever would have been able to do on your own. Before making any sizable donation, investigate whether you and the charity could get more from your donation by using a donor-advised fund.
2 Comments
Well done, Mike. I appreciate someone who educates others on the special experience of setting up a donor advised fund
You may like to know about another Donor Advised Fund alternative. American Endowment Foundation is unique in that it is a truly independent charitable foundation that sponsors Donor Advised Funds. Since we do not sell proprietary mutual funds we allow the donor greater investment flexibility and allow the donor to recommend his or her financial advisor to manage the assets in a Fund.
@Phil, Thanks for the additional info. I hope our readers consider the American Endowment Foundation along with other alternatives when searching for the program that best matches their goals.
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