Choosing and establishing the right charitable vehicle can be challenging as there are many factors to consider and several options to choose from. A donor-advised fund provides some tax advantages if you are looking for a way to create a charitable vehicle to meet your charitable goals in the most tax-efficient and effective way.

What is a Donor-Advised Fund?

A donor-advised fund is a giving account administered by and housed in a public non-profit sponsor organization, such as a community foundation, university, religious organization, or financial institution.

Considerations Before Establishing

Below are items to take into consideration in determining if a donor-advised fund would be a good fit for you.

1. A donor-advised fund is not an independent legal entity, but an account maintained by the sponsoring organization.
2. Donors can make recommendations as to how the funds are invested and granted out but give up legal control. Investment and grant requests must be approved by the sponsoring organization.
3. Donor-advised fund sponsors typically have rules against gifting assets to a private foundation.
4. Grants can be made anonymously.
5. Fees associated with a donor-advised fund are less than those connected to a private foundation.

6 Tax Advantages of a Donor-Advised Fund

1. Donations are treated the same as donations you would make to a public charity. Cash donations are deductible up to 60% of your adjusted gross income and appreciated assets are deductible up to 30% of your adjusted gross income.
2. Donors make a charitable contribution and receive an immediate tax deduction even though the money may not be dispersed to a charity until a later time.
3. Donors may be able to avoid paying capital gain taxes by donating highly appreciated assets. The donor would receive an income tax deduction for the fair-market value of the asset on the date of contribution.
4. The assets can grow tax-free which, in turn, can generate more money for charitable giving.
5. Annual tax filings are not required for donor-advised funds. Annual distributions are not required and there is no tax on investment income.
6. Donor-advised funds will not be subject to estate taxes.

Another charitable vehicle you may be interested in establishing is a private foundation. Learn about its potential tax benefits here.

To help determine what specific tax advantages you would gain by establishing a donor-advised fund, please contact your Untracht Early advisor.