To learn more about charitable gifting, check out our articles, Donor Advised Fund Comparison, “Bunching” Charitable Gifts Using Donor Advised Funds and Charitable Gifting in 2020.

The following is the transcript to this presentation:

Hello, my name is Chip Hymiller with the firm Beacon Financial Strategies and today I'm going to talk with you a little bit about the benefits and advantages of donor advised funds as they relate to your charitable gifting strategy.

First of all, what is a donor advised fund?

Well, a donor advised fund is simply an account that allows donors to make charitable contributions. Donor advised funds are generally established at brokerage firms, mutual fund companies, and even public charities. Companies like Vanguard, Fidelity and Charles Schwab all have their own donor advised funds that can be established by individuals and can really become a major part of a person's charitable gifting strategy.

Donor advised funds are nice in that they have low minimums. So there's no, $100,000 or more requirement in order to make this an appropriate strategy for your charitable gifting. I've even seen companies that offer, account minimums as low as $5,000. So it's very reachable for most people who are charitably inclined.

One of the main benefits of a donor advised fund, as with most gifts to charity is that when you make a gift into a donor advised fund, you do receive as the taxpayer, a tax deduction in the year that the gift to the donor advised fund is made. So this is nice in that you can contribute low basis investments, say stock or real estate, or even mutual funds into this donor advised fund. These low basis investments can then be sold and reinvested in a more diversified manner.

You would not pay any capital gains taxes by making this gift to a donor advised fund. And over time within the donor advised fund, you could invest it in a way that could grow. And so it's kind of a nice way to implement a charitable gifting strategy as funds deposited into donor advised funds are invested in, usually mutual funds, but a lot of times custodians will have model portfolios. Or, I know Vanguard uses life strategy funds so you can kind of cater it to your own specific investment strategy or risk profile.

One interesting element is that although you can make a gift and receive that tax deduction in the year that the gift is made into the donor advised fund, you can actually spread the gifts to charities out over time. And so, there's no requirement that you have to immediately make a gift to charity.

For example, you may want to give $10,000 to the donor advised fund in one year (and take the tax deduction), but then let's say you want to gift a thousand dollars each year to, your church or some other charity. And that makes it a nice way to control the timing of gifts.

So it's important to point out, the fact that when you establish a donor advised fund, you are able to name it whatever you'd like. It doesn't have to be your name attached to the donor advised fund. Often times families use a donor advised fund as a way to incorporate multiple members of the same family into one gifting strategy. You can name your fund the Smith Family Gift Fund, or any name that you prefer. Going this route can actually facilitate anonymous gifting and that is a really nice feature because if you've ever made any reasonable size gifts to a charity, you are on their mailing list, you are peppered with solicitations and that sort of thing. And so donor advised funds help from the standpoint of making, anonymous gifts.

The other thing to keep in mind is that donor advised funds, compared to other types of gifting strategies, are very hassle-free and they're relatively inexpensive. This is especially true as compared to a charitable trust or other types of charitable foundations or gifting strategies. They all have tax filing requirements and annual report requirements and all of these other costly items that can be cost prohibitive to the gifting strategy itself. So the charity gets less money as the fees are higher.

Donor advised funds have a very low fee thresholds, and each custodian is a little bit different. So you'll have to check out the internal fees with the donor advised funds as you go through the due diligence process. But, in general, they are a very low cost and hassle-free way of making strategic gifts.

A couple of things to point out here is that, you know, grants from donor advised fund to a charity is super easy, especially with national organizations. The fund itself has a list say The Salvation Army, The United Way and all of the national charities. There's a list of those and you can simply transfer funds electronically from your donor advised fund to those national charities.

Donor advised funds can also do a great job of facilitating gifts to local charities, food banks, food pantries and even churches. You can establish a relationship between your donor advised fund and your church to facilitate giving. So it's really an easy thing to do, but it works both on a national and local giving level.

Hopefully this presentation has been a good overview for you about donor advised funds. Keep in mind that every situation is a little bit different and, in order to make the best decisions for you, donor advised funds should be considered as one element of your total comprehensive strategy.

Hopefully if you have any questions, you will not hesitate to reach out and give us a call.