Consider a Donor Advised Fund

By Denice A. Gierach – September 9, 2009

Many people give small amounts to numerous charities, without considering whether and how to give more of their total charitable gifts to those organizations that assist in dealing with issues near and dear to their heart, which may range from scholarships to educational institutions, research on cancer, Alzheimer’s disease, mentoring programs, helping children, humane societies, to name but a few.  Those larger gifts allow them to either support an existing program or to create a program that creates a legacy for their family while supporting those causes that really mean something to them.

There are a number of ways to support a charity with larger gifts.  Some of them are as easy as writing a check or by gifting shares of stock in which the donor has a low cost basis.  Another way is using a charitable remainder trust where the donor receives a percentage of the fair market value of the donated assets for his or her lifetime or a term of years, leaving the remainder interest to charity.  A method used by Jackie Kennedy Onassis is a charitable lead trust, where a trust is established and the income of the trust is given to the charity and upon the donor’s death or after a term of years, the donor’s family gets the remainder of the trust.

Sometimes, a donor wants to provide a gift over time, but also wants to stay involved in the recommendation of a gift to charities of their choice.  Such a donor would be using a donor advised fund.  Using this type of vehicle does not tie the donor to a specific charity or charitable purpose, as long as the donor does not impose a material restriction or condition on his or her gift.  The donated property must be held either by a large public charity or held by a community foundation, such as The DuPage Community Foundation, or there are several brokerage houses who have this vehicle set up to avoid having to handle all of the paperwork and to act as the administrator of the fund.

One of the reasons that donors like a donor advised fund is that they want to train their children on the importance of charitable giving.  These funds promote long term commitments supporting very worthwhile causes that the family has supported in the past.  This is because the donor and their families or persons designated by them are actively involved in recommending when, how much and to what charities their funds’ assets will be distributed.

In comparison to private foundations, donor advised funds are easier and less expensive to create and are subject to fewer restrictions and regulations.  Donors can start smaller—the initial contribution may be as small as $10,000 and the donors can build their funds along the way, allowing the grants out of the fund to grow to make a larger gift to finance particular projects such as financing a new piece of medical equipment for a hospital, providing for major grants from the fund in the event of a disaster and the like.

Besides the tax deductions that may be allowed for the use of a donor advised fund, the donor has trained his family on the importance of giving, thereby creating a legacy for the donor’s family in the community.