Use Donor-Advised Funds To Leverage Charitable Gifts
Donor-advised funds present an exciting opportunity for financial advisors to expand their role in the charitable giving process. As agents of change, advisors can unite the interest of individuals, families, and charitable organizations to achieve mutually beneficial results.
The simplicity and versatility of donor-advised funds give the advisor a tool that is well suited for current and deferred giving arrangements.
With minimal paperwork, the process of opening an account at a donor-advised fund is straightforward. An individual account is established at the fund and named by the donor. The donor has wide latitude in selecting a meaningful name for the account. The account can be named to provide recognition for the donor or to maintain a donors privacy and anonymity. For example a family, in memory of a loved one, could establish the “Jane Doe Foundation.”
Initial and subsequent contributions to a donor-advised fund may be made with relatively small dollar amounts. Minimum required contribution levels are fund specific, but it is not uncommon for donor-advised funds to have a minimum account opening balance as low as $5,000–with additional contribution minimums of $250.
Donor-advised funds accept a wide range of contributed property, typically including cash, mutual funds, and securities. Contributions are not limited to those made by the individual or organization that established the account–accounts may accept contributions from many sources.
For example, the “Jane Doe Foundation” account could be funded by family members with $5,000 and accept additional contributions from individuals and corporations for as little as $250 each.
Grants to qualified charitable organizations are made from the donors account by the trustees of the donor-advised fund based on input and recommendations from the donor, or named donor advisors. The role of donor advisors is significant because it promotes involved philanthropy beyond the lifetime of the donor.
For example, the children of Jane Doe can be named as donor advisors to the “Jane Doe Foundation” and may make grant recommendations regarding the selection of charitable recipients and the dollar amounts of the proposed grants. The use of successor donor advisors allows the continued participation of family members in charitable activities that were important to preceding generations.
The recipients of grants must be qualified charities under IRS rules and regulations. There is a great deal of distribution flexibility with regard to the timing of the grants as well as the number and name of charitable beneficiaries. The assets of donor-advised accounts may be distributed to one or many charities.
Recommendations regarding the selection of grant recipients can change based upon the goals of the donor or donor advisors. The distribution can be made in one lump sum or be made in smaller amounts over a period of time. Minimum distribution amounts vary by donor advised fund but many funds will make grants for amounts as small as $500.
Using the “Jane Doe Foundation” as an example, the family members as donor advisors may select a single charitable recipient this year to receive 5% of the value of the account. Next year, the family members may choose three recipients who will each receive $5,000.