Charitable giving is meant to be a pleasure, not a slog. Writing a few checks a year to your favored groups isn’t difficult to manage. Yet, as the number of organizations you support increases, when bigger gifts require due diligence, or when your own desire to be more strategic with your charitable portfolio increases, “checkbook giving” becomes a burden.
Some people choose to get organized with a private foundation. Donor-advised funds offer another alternative, one that allows a broader swath of donors to donate to charity in a way that is easier (which we will talk about this week), more tax advantaged (our next topic), and customizable to the donor’s interests and privacy needs (which we will highlight in the third installment).
Let’s examine some of these benefits donors receive from opening a donor-advised account.
1) A donor-advised fund streamlines and simplifies the giving process
With a donor-advised account, a donor can make a single contribution (or more if desired, of course) to his or her account, immediately generate a tax deduction, and then choose the timing of grants to charities he or she wishes to support. Requesting a distribution from the account is simple. The tedious, administrative work of confirming a charity’s 501(c)(3) tax status, sending the contribution, and receiving any follow-up correspondence from the charity is all handled by the donor-advised fund sponsor.
Donor-advised funds also offer the opportunity to turn non-cash assets into charitable dollars. Gifts of appreciated stock, closely held stock, or valuable personal property can all fund a donor-advised account, and generally in a tax-advantaged way.
What are some real-world ways a donor might simplify giving with a donor-advised account?
DonorsTrust had a busy executive who planned to make a gift to a specific organization. However, he didn’t want the organization to receive the entire amount at once, but he did want to generate a tax deduction for the entire value of the planned gift immediately. To solve his problem, he discussed his charitable plan with us, opened an account, funded the account with the full amount he planned to eventually grant to the organization (allowing him to generate a tax deduction for the full value of the planned gift right then), and he requested we make quarterly grants to the organization over a timeframe he felt suited the organization’s needs. This grantmaking schedule runs like clockwork.
In another case, a couple who supports a certain set group of organizations each year opened an account at DonorsTrust. Each fall, we provide them with a list of groups they supported during the prior year, as well as a list of cumulative gifts made from their account during the current year. After receiving the list, the couple returns it to us with additional grant requests, sometimes adding or removing an organization, and sometimes adjusting levels from past years. The list helps ensure that their favorite groups always get supported each year. Year-end giving couldn’t be easier.
2) DAFs offer flexibility on how you make grants and plan your estate
Anyone who has gone through the estate planning process knows how time consuming and complex it can be. Based on that experience, they usually dread the thought of making changes to the plan.
But well-advised individuals also know that estate plans must be reviewed and updated periodically to make sure they continue to meet their needs and life circumstances – circumstances that include changes in their family structure and changes in their charitable missions.
While a donor-advised fund account can’t do much to assist with estate plan changes necessitated by family structure changes, incorporating a donor-advised fund account as part of an estate plan makes the charitable planning portion of estate planning a breeze.
Instead of naming individual charities as beneficiaries in your estate planning documents, you could create a donor-advised fund account and name the charity housing the account as your estate’s charitable beneficiary. Any changes you wish to make to the charitable portion of your estate plan can be handled very simply – all you need to do is discuss and memorialize the changes with the sponsoring organization. No need to involve a lawyer or make modifications of your last will and testament and other testamentary documents, such as trust agreements.
Adjusting your donor intent statement or the list of organizations the fund would support after death is as simple as modifying the recommendations on file with your donor-advised fund sponsoring organization. It’s also easy to change the duration of the account after death, and who, if anyone, will have the right to provide advice for the account when you no longer can.
Of course, the flexibility of a donor-advised account covers one’s lifetime giving as well. Each DonorsTrust client utilizes his or her account in a different way. Our clients tend to be active givers, making a contribution and then using the account to easily make grants throughout the year. Others contribute diligently but make fewer grant requests, instead growing their charitable assets for a time until they are ready to request a major gift.
Continue reading part 2 of this series: Benefits of DAFS: The Tax-Advantaged Way to Give