Donor advised fund

A donor-advised fund is a charitable giving vehicle administered by a public charity and created for the purpose of managing charitable donations on behalf of an organization, family, or individual. A donor-advised fund offers the opportunity to create an easy-to-establish, low cost, flexible vehicle for charitable giving as an alternative to direct giving or creating a private foundation. Donors enjoy administrative convenience, cost savings, and tax advantages by conducting their grantmaking through the fund.^{[citation needed]}

The New York Community Trust pioneered the development of donor-advised funds in 1931. Although the second such fund was not created until 1935, in the decades since the field has greatly expanded as commercial sponsors, educational institutions, and independent charities started offering the service. Donor-advised funds are the fastest growing charitable giving vehicle in the United States of America, with more than 152,000 donor-advised accounts established, holding over $25 billion in assets.

Because the fund is housed in a public charity, donors receive the maximum tax deduction available, while avoiding excise taxes and other restrictions imposed on private foundations. Further, donors do not incur the cost of establishing and administering a private foundation, including staffing and legal fees. Since the maximum tax deduction is received by the donor at the time of the gift, the foundation administering the fund gains full control over the contribution, granting the donor advisory status. As such, they are not legally bound to the donor, but make grants to other public charities upon the donor's recommendation. Most foundations that offer donor advised funds will only make grants from these funds to other public charities, and will usually perform due diligence to verify the grantee's tax-exempt status.

Regulation

Current U.S. tax law allows the donor of appreciated securities or other assets to get a tax deduction for the market value of the donation and avoid capital gains taxes. This double tax advantage can make donating appreciated assets to a charitable organization more attractive than selling the assets and donating cash. By donating appreciated assets to a donor advised fund and then advising the fund to make donations to several charities, one can reap these tax advantages without the hassle and paperwork of transferring non-cash assets to several organizations. This combination of convenience and full tax advantage is one reason that donor advised funds are used.

While private foundations in the United States are heavily regulated by the Internal Revenue Service, including rules on oversight and minimum annual payouts, donor advised funds housed in public charities are not subject to the same tax restrictions. On August 17, 2006, President Bush signed the Pension Protection Act of 2006 (H.R. 4) into law, which includes a number of changes to the regulatory framework for donor-advised funds, and follows both House and Senate passage of H.R. 4. The sections dealing with donor-advised funds include:

• Legal definition of a donor-advised fund.
• A list of prohibited payments to donors and advisers to donor-advised fund.
• New rules about what grants can be made from donor-advised funds.
• The documentation required for all contributions to donor-advised funds.

Tax Efficiency Example

The following example is taken from Vanguard’s marketing material for their plan:

Suppose you have 1,000 shares of stock that you purchased 15 years ago (thus, you’re in long term capital gains territory). Assume that you purchased the stock for $10 per share and it is now worth $100 per share. Now, let’s compare the cost to the donor of making a contribution of $100,000 to a charity of your choice. We assume a 35% income tax rate and 15% long term capital gains tax rate.

Option 1: Contribute cash from sale of securities

• Immediate cost of donation: $100,000
• Capital gains tax incurred: $13,500 (15% times ($100k minus $10k))
• Income tax saved: ($35,000) (35% times $100k)

Net cost to donor: $78,500

Option 2: Contribute appreciated securities to donor advised fund

• Immediate cost of donation: $100,000
• Capital gains tax incurred: NA (15% times $100k minus $10k)
• Income tax saved: ($35,000) (35% times $100k)

Net cost to donor: $65,000

Thus, you can effectively contribute $100,000 to the public charity of your choice for $13,500 less in actual donor cost by using the donor advised fund. This example does not acknowledge that the same tax advantage would be obtained if one were to donate the appreciated securities directly to a 501(c)(3) charity, whether it was a donor-advised fund or not, as the charity then sells the assets and the capital gains are avoided.

Find a community foundation near you

• [1] Community Foundations Locator

List of largest donor advised funds

• Fidelity Charitable Gift Fund (Fidelity Investments) - US$4.3 billion (June 2010)
• Schwab Charitable Fund (Charles Schwab) - US$2.4 billion (June 2010).
• Vanguard Charitable Endowment Program (The Vanguard Group) - US$1.9 billion (June 2010).
• National Philanthropic Trust - US$1.0 billion (December 2010).
• Jewish Communal Fund - US$1.0 billion (December 2011).
• The National Christian Foundation - US$781 million (December 2009).

List of Donor Advised Giving Programs

• American Endowment Foundation A national independent Donor Advised Giving Program
• Barnabas Foundation
• California Community Foundation in Los Angeles.
• Combined Jewish Philanthropies of Greater Boston, with over 500 Donor Advised Funds with assets of $213 million under management as of April 2010, offers low minimum investment and management fees.
• Dechomai Foundation A national donor-advised fund that accepts and liquidates donations of non-cash assets (real estate, limited partnerships, closely held stock, restricted stock, S-Corp stock, life insurance, notes and other unusual assets subject to Board approval) then grants net proceeds to charities that donors advise.
• Emporia State University's Donor Advised Funds Program (Emporia State University)
• FJC A Foundation of Philanthropic Funds A national foundation of donor advised funds and other programs
• Jewish Communal Fund
• Jewish Community Foundation of Southern Arizona
• The National Christian Foundation
• National Philanthropic Trust accepts the widest range of assets, allows donors to recommend grants to charities throughout the U.S. and around the world, provides best-in-class investment options for charitable gifts, and the opportunity for donors to establish a philanthropic legacy for generations.
• The Renaissance Charitable Gift Fund An independent Donor Advised Fund
• RSF Social Finance is a nonprofit, public charity that is dedicated to transforming the way the world works with money. Donor Advised Funds at RSF are invested in RSF's Impact Investment Portfolios, which are 100% mission aligned.
• Tides Foundation's core philanthropic services are Donor Advised Funds.
• The U.S. Charitable Gift Trust is a public charity that offers simple and structured planned giving vehicles through its Donor Advised Fund and Pooled Income Funds. The tax exempt status allows us to provide the same tax benefits as a conventional charity while also providing Donors with lifelong income and/or the ability to support their favorite charities on their own time frame.
• United Way Worldwide's International Donor Advised Giving Program (United Way Worldwide)

See also

• Charitable organisation
• Donor Managed Investment Account
• Foundation (charity)
• Endowment tax

External links

• National Philanthropic Trust, Donor Advised Fund Report
• Elfreena Foord, Philanthropy 101: Donor-Advised Funds
• Analysis of S. 2020 The Tax Relief Act of 2005
• Pension Protection Act of 2006 (H.R. 4)