If you are thinking about charitable giving as part of your long-term estate plan, you may be interested in making donations to a donor-advised fund. These funds allow you to grow your money over time without committing to a specific charity right away.
What Is a Donor-Advised Fund?
A donor-advised fund is a fund or account that is maintained and operated by a 501(c)(3) charitable organization. This charity is referred to as a sponsoring organization. One, several, or many donors make contributions to the account. The sponsoring organization has legal control over the money once the donors place it in the account. Then the money stays in the account until the sponsoring organization moves it.
The donor or the donor’s representative makes an agreement with the sponsoring organization that the donor will have “advisory” privileges regarding the investment and distribution of the money in the account. In other words, the donor has input on what ultimately happens to the money, but the sponsoring organization controls the actual bank account. The donor cannot get the money back once it is in the account. In return, the donor gets a tax deduction.
What Are Some Reasons to Donate to a Donor-Advised Fund?
As mentioned, the donor gets a tax deduction for the year of the donation. Since the money is no longer part of the donor’s estate, he or she may catch a break on estate taxes since the taxable estate is smaller. Further, many people want to donate to charity but have no idea which charity to pick. Giving money to a donor-advised fund allows you to wait until you find a charity you like.
In addition, you can use contributions to a donor-advised fund to minimize your tax liability in some years. Give to a fund in years when you need the charitable deductions, then tell the sponsoring organization to move the money out of the fund to charities over several years.
Are There Alternatives to Using a Donor-Advised Fund?
You have many alternatives to using a donor-advised fund if you want to give to charity. You could donate money directly whenever you want. You could create a trust and make a charity one of the beneficiaries. Many people decide to make a charity their “remainder beneficiary”, meaning after the other beneficiaries have been paid or the trust purpose has been accomplished, any remaining money in the trust goes to the charity. Others give the remainder of their estates to charity in their wills, after specific gifts are made to family.
Planning your estate and interested in charitable giving? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.