What are the benefits of a donor-advised charitable fund?

On Behalf of | Nov 10, 2020 | Estate Planning

A donor-advised fund is a savings account that lets you set aside money or assets for charitable causes you specify now or in the future. 

Consumer Reports explains that these funds can help you meet your charitable giving goals while offering tax and other advantages. 

What are the tax implications of investing in a donor-advised fund?

You may have the option to invest your contributions in cash, mutual funds or exchange-traded funds. Your investment will grow tax-free. 

If you itemize deductions, you may deduct contributions you make to a donor-advised fund. If you do not meet the threshold for itemizing, you may group together your charitable donations and make larger contributions in years when you can itemize. 

If you do not itemize, you may consider a contribution of appreciated non-cash assets. The charity benefiting from the fund may sell the assets and use the proceeds. When you donate an appreciated asset, your annual deduction may not exceed 30% of your adjusted gross income. If your donated assets have a value greater than this limit, you may carry forward the deduction over a five-year period. 

What should donors know about the administration and distribution of donor-advised funds?

A fund can simplify your record keeping. The fund administrator will keep records of your contributions, maintain receipts, confirm the 501(c)3 status of your designated charity and issue appropriate tax documents. 

You may direct your donor-advised fund to invest in companies that align with your values. Some funds may have options that allow you to support enterprises that make a social impact. 

While there are no laws that regulate the amount or frequency of distributions from donor-advised funds, some funds require that investors follow a giving schedule. In some cases, inactive accounts could be subject to liquidation. 

The fund may charge administrative and investment fees. Your financial adviser may also charge fees. You should research these costs before deciding which fund is an appropriate investment vehicle.