Individuals who wish to make a commitment to philanthropy often consider establishing a private foundation. But Donor-Advised Funds offer significant advantages with no start-up costs, higher tax deduction limits, and less paperwork and expense. These funds are charitable organizations set up to receive your donations and administer your gifting plan. They have a structure that makes them efficient and inexpensive.
What are the advantages to you?
_ An immediate charitable donation �
With proper tax planning you will receive an immediate tax deduction for the total value of your gift.
_ Spread donations out over several years �
You are able to make a large gift in one year, but determine the charities you wish to benefit over time.
_ Avoid capital gains taxes �
When you gift appreciated assets (rather than sell them outright), you avoid paying capital gains tax. Examples of this kind of gift might include highly appreciated stock, mutual funds, and real estate.
_ Reduce estate taxes �
Your charitable donation reduces the value of your estate and lowers any potential estate tax consequences.
Who might use them?
We�ve identified some people who would benefit by making a gift to a Donor-Advised Fund. Do you see yourself in this group?
_ Planning a gift of $10,000 or more �
Most Donor-Advised Funds have minimums of at least $10,000. Obviously they will accept more, but you should be careful to contribute amounts that work with your income tax situation.
_ Expect to receive a large spike in income in one year �
It makes very good sense to make a large donation in a highincome year. The donation will reduce your tax bill at your highest tax rate.
_ Want a structured approach to charitable giving �
These funds create structure to your charitable giving. They remind you when it is time to recommend a charity and they handle the administrative details.
_ Direct your investment �
You may want to retain, or assign to your investment advisor, control of the way in which your gift is invested over time.
What are the Disadvantages? The disadvantages of making a gift to a Donor-Advised Fund are:
_ You cannot control the decision about the charity �
The tax code requires that you give control of the gift to the Donor-Advised Fund, which retains the right to make the final decision about your designated charity. Normally, they follow your wishes, so this should not be a problem.
_ Limited investment options �
In some cases, the Donor-Advised Fund may offer limited investment choices or retain full control of the investment. Careful selection of the Donor- Advised Fund can prevent this problem and allow you to direct the investment management choices. BWFA can help you select the fund which best suits your needs.
_ Less flexibility than a private foundation �
Donor-Advised Funds do not allow the donor to use the gift for personal benefit. For those individuals gifting larger amounts of $1,000,000 or more, a private foundation will offer more flexibility, including the opportunity to put family members on the foundation�s payroll.
A Donor-Advised Fund allows you to build a legacy of philanthropy. Planning for and recommending grants can be an activity you share with your family and pass on to your heirs.
If you would like more information about this topic, please feel free to contact us.