This time of year, as we look for thoughtful ways to give to our loved ones, many of us also feel the desire for charitable giving that benefits our neighbors near and far. For those inclined to donate, a variety of options exist. But in recent years, a new type of charitable giving vehicle, the donor-advised fund, has quickly grown in popularity for its ease of use and accompanying tax benefits.
Donor-advised funds are giving accounts that are legally held and administered by an IRS-recognized charitable sponsor. The sponsor operates and maintains the fund on behalf of the donor, who can then recommend recipients for the fund assets.
Benefits of donor-advised funds
The major advantage of donor-advised funds is that they provide an immediate tax benefit in the year the money is contributed to the fund. The donor then has the option of gifting the money in the account to charities right away, or growing it inside the account indefinitely as they decide who the recipients will be.
The great thing about this arrangement is that it takes the pressure off the donor to pick the ideal charity to support right away. Especially at this time of year, when a person might not have gifted as much as they typically do, this can be a great tool to ensure they fulfill their yearly donation goals while putting off some of the details until a less busy time.
As much as charities appreciate donations, they’re not always equipped to handle them, especially if the donation is a large amount or in the form of stock or another type of appreciated asset. A donor-advised fund makes it so that the donor doesn’t have to run to charities they normally support and ask if they can accept a donation right then. Or, if a donor is eyeing a donation to a new charity, a donor-advised fund provides them the flexibility to do their due diligence.
Donors who might benefit
Who is a good candidate for a donor-advised fund? Unsurprisingly, the simplicity and clear benefits of this vehicle make it a logical choice for various investor types. Among them are:
• Family Donors: Some families prefer to coordinate their giving, but they might not have the wealth to make a family foundation a suitable option. Donor-advised funds offer some of the same benefits as family foundations, but they aren’t subject to the same tax laws and regulations. Family members can donate to the fund individually, then decide collectively how the funds should be distributed at their convenience — perhaps during a family vacation.
• Frequent Givers: For those who donate regularly throughout the year, it can be time-consuming to keep receipts organized for tax purposes. Using a donor-advised fund greatly simplifies this process, with donors only needing their year-end fund contribution statement.
• Anonymous Donors: For those who want to donate to charities but are conscious of preserving their privacy, a donor-advised fund can provide tax benefits while maintaining anonymity.
• Year-End Planners: With so many things going on during the holiday season, it’s arguably the worst time of year to be trying to decide on a recipient for a meaningful charitable donation. A donor-advised fund allows donors to delay their decision-making until they have more time, while taking the tax benefits of their donation during the current calendar year. Having this option can be especially helpful for donors who might need to increase their level of charitable contributions for tax-planning purposes.
• Itemized Taxpayers: If you’re a taxpayer who itemizes deductions on your tax return, you can simplify that process using a donor-advised fund. By “bunching” two years’ worth of charitable contributions into one year, taxpayers can itemize in one year and take a standard deduction in the next, while specifying the charities they want to donate to on their own timeframe.
Charitable giving through Argent Foundation
At Argent Financial Group, one of the most fulfilling things we do for our clients is assist them toward their charitable giving goals. In that spirit, we recently established an independent IRS-recognized public charity, Argent Foundation, for the purpose of sponsoring donor-advised funds. We believe that the benefits of this type of charitable giving shouldn’t be limited to large donors. It’s not uncommon for other public charities to have minimum required investments of more than $5,000 to open, with some as high as $25,000. We intentionally lowered the barrier of entry for our clients to establish donor-advised funds at Argent Foundation, with no minimum amount required to start or contribute to a fund and no minimum balance requirement to keep a fund active.
A variety of assets can be contributed to a fund, including cash, public stocks, private stocks or real estate. One important thing to note is that all gifts are irrevocable, so there’s no way for a donor to take those assets back for themselves if they change their mind. Fund donors, or their delegates or successors, can recommend grant distributions to any U.S.-based 501 (c)(3) organization.
If you’re interested in learning more about donor-advised funds or establishing one for your charitable giving, we’re glad to help. Contact one of our advisors to learn more.