Click to enlarge. Source: Advise Us Fund

What vehicle do young tech billionaires, retired farmers and kids too young for a driver’s license share? Donor-advised funds. This increasingly popular charitable vehicle is highly customizable for clients’ philanthropic, tax planning and financial planning needs. Its ease of use and numerous giving options make it the charity vehicle of choice for many clients.

Vehicle of Choice

Donor-advised funds are the fastest growing charitable vehicle for a reason. They have low maintenance fees compared to private foundations and charitable trusts. Most funds permit donors to have their portfolio managed by their financial advisor. Donor-advised funds are also easy to establish and use. Their incredible flexibility offers solutions for individuals and families giving from a few thousand to a few billion dollars to charity. These factors make donor-advised funds perfect for people in most stages of life.

Customizable Options

No matter what stage of life your client and their dependents are, there is often a donor-advised fund solution.

Minor children. While adult advisors make legal decisions in traditional donor-advised funds, children can gain philanthropic and business skills by participating. Children can help in everything from naming the fund, to budgeting, to suggesting grants for charity. Adults can also name children successors to donor-advised funds. Some fund administrators provide youth options that offer children more formal involvement.

Young adults. From entrepreneurs with IPO-related financial- and tax-planning needs, to young adults receiving an inheritance, donor-advised funds offer charitable solutions. Donor-advised funds run on your client’s busy schedule. They permit decision making when your client has the time, and eliminate most administrative tasks to save time.

Middle-aged adults. Adults in their 50s open more donor-advised funds than other age group. Many individuals and families create a “living legacy” with their funds, watching the impact of their charitable grants. Many also use donor-advised funds in their estate planning. Most clients realize tax advantages by making gifts of appreciated assets, executive bonuses or proceeds from business sales to their funds. The asset and tax efficiency of donor-advised funds helps maximize the dollars going to charity.

Older adults. Similar to middle-aged adults, many older adults seek financial and tax planning benefits from their donor-advised funds. Many clients take advantage of a higher tax rate deduction by making pre-retirement gifts to their funds while they are working. This can maximize their charitable giving dollars in retirement.

Unique Charitable Giving Accommodations

Donor-advised funds benefit from ease of use coupled with powerful charitable, financial and tax planning advantages.

Minimum financial obligations with no upper limit. Minimum gifts to create a fund are as low as $2,500. Grant minimums to charity from funds are as low as $50. 

Most of the largest, and even smaller fund administrators, require minimum annual grants to charity total an average of 5% of assets. Despite this, most donor-advised funds grant an average closer to 15% to 20%, so for most charitably inclined clients this is not an issue. Highly asset- and tax-efficient. Gifts to donor-advised funds are tax deductible in the year of contribution. Clients can deduct up to 50% of adjusted gross income (AGI) for cash gifts and up to 30% of AGI for gifts of appreciated securities held at least a year, real estate and other assets. 

Charitable choice and planning benefits. Clients can advise grants to more than one million IRS qualified 501(c)3 charities. That includes most well-known and many lesser known, but deserving, nonprofit organizations. Clients can maximize time and efficiency by making grant advisements in advance and can schedule recurring grants to charity.

Almost no maintenance and minimal paperwork. Gifts to donor-advised funds are tax deductible and clients should keep those records. Those are the only donation records clients need – whether the client’s fund makes 10 or 10,000 grants to charity. This simplifies tax preparation paperwork, and there is almost no other administrative maintenance. 

Work well on their own and with other charitable vehicles. Funds work well as standalone charitable vehicles, with private foundations and with charitable trusts. Many clients with foundations also have donor-advised funds. Clients can make donor-advised funds successors to charitable trusts and IRAs.

There is a reason that donor-advised funds are the fastest growing charitable vehicle. Everyone from farmers to Facebook founder Mark Zukerberg use them. They work extremely well for donors and charities. 

Donor-advise funds’ low cost of entry – as low as $2,500 – means clients can easily take a test drive to see how they enjoy the charitable, tax and financial planning benefits. Clients are likely to find – like many others with donor-advised funds – that this charitable vehicle offers tremendous control, great flexibility and great performance.