By Jessica Kott — YHB Investment Advisors, Inc.
A donor-advised fund is a simple, low cost, flexible vehicle for charitable giving, which can be used as an alternative to creating a more complex private foundation. It allows individuals or families to establish a legacy of charitable giving for a lifetime or in perpetuity. A donor-advised fund is a charitable fund managed by a third party who handles all record keeping, collects contributions, and then distributes them to charities as directed by the donor. The types of assets that can be used to fund the account include cash, stocks, bonds or mutual funds.
Donors take advantage of administrative simplicity and tax savings by conducting their grant-making through a donor-advised fund. Donor- advised funds are the fastest growing charitable giving vehicle in the U.S. Many individuals are now closing their private foundations in favor of the less administratively complex donor-advised fund. They can be used as a practical way to adopt a long-term approach to philanthropy and to consolidate charitable giving activities.
Current U.S. tax law allows the donor to get an immediate tax deduction for the market value of donated assets. By contributing appreciated securities, the donor can void paying a capital gains tax, thereby giving more money to their favorite charities. This double tax benefit makes donating appreciated assets to a charitable organization more advantageous than selling the assets, paying any capital gains tax and then donating cash. The donors gift to the donor-advised fund is irrevocable and the donor cannot reclaim assets they have contributed or access future income generated by the fund. Donor-advised funds have another significant advantage over private foundations they do not require annual distributions, which can be beneficial in periods when stock prices are lower.
Donors determine how contributions are invested and the time frame for charitable donations. Donors can recommend grants to any eligible public charity, consistent with their interests and values. A donor has the option of being recognized or remaining anonymous. Also, they can designate particular individuals as successors to assume all advisory privileges. A family member can recommend that gifts be made in honor of a loved ones memory, creating a family legacy of generosity for future generations.
The greatest use of life is to spend it on something that will outlast it.
- William James, 1842 – 1910
By Jessica Kott – YHB Investment Advisors, Inc.
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