In addition to the personal fulfillment many individuals find by supporting charitable causes special to them, a thoughtfully planned and implemented charitable giving strategy can result in greater tax savings and after-tax results. For investors who own appreciated assets, such as publicly traded or privately held stock, mutual funds, real estate or a sizeable IRA, there are significant benefits to gifting those assets to qualified charities, instead of writing checks or using a credit card (far beyond credit card rewards!).
There are many different vehicles for charitable giving, including direct transfers to a charity, donor advised funds, private foundations, qualified charitable distributions and charitable trusts, each with pros and cons and varying levels of complexity. However, donor advised funds arguably have the broadest potential appeal as a tax-efficient gifting strategy, while also offering ease of administration. As each person’s tax circumstances are unique, it is always recommended that donors consult with a tax professional before acting on any strategy.
The Fundamentals of a Donor Advised Fund
A donor advised fund is a private fund administered by a section 501(c)(3) organization and created for the purpose of managing charitable donations on behalf of an organization, family or individual. In many ways, they are administered and can be invested similarly to any other custodial accounts and are offered by numerous custodians (including Schwab, Fidelity and Vanguard). Comparable to any other account, features such as minimum balance and grant sizes will vary by custodian.
To open new accounts, the aforementioned custodians require minimum initial contributions of between $5,000 and $25,000 with no maximum. Generally, administrative fees begin at 0.60 percent annualized on asset balances. Reduced fee incentives may be available on accounts with larger balances, and similar to other investment accounts, additional fees may be incurred for investment management.
