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Charitable funds: Not just for billionaires

Want to make your charitable giving go farther? A giving fund is worth considering.

  • By Roger Fillion,
  • Fidelity Interactive Content Services
  • – 12/03/2013
  • Charitable Gift Fund
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They aren't super-rich, and they aren't bankrolling big foundations. They're average investors who have saved and invested responsibly for years. Now, a growing number of them are setting up "mini foundations" to help make the most of their hard-earned charitable dollars.

Ranging from twenty-somethings to octogenarians (and up), these investors are finding that using a donor-advised fund (DAF) can be much easier than giving directly to dozens of different charities each year — and less hassle than establishing their own private foundations.

According to charitable-giving experts, donor-advised funds:

  • Simplify charitable giving by helping you plan and organize donations
  • Make it easier to donate not only stocks and bonds but non-public and less liquid assets such as art, collectibles and real estate
  • Require less paperwork and are less costly than private foundations
  • Help with financial planning by making it easier to budget
  • Provide tax benefits that can make your charitable dollars go farther

"They've absolutely been growing in popularity," says Amy Danforth, senior vice president at Fidelity Charitable Gift Fund, an independent public charity with a donor-advised fund program established in 1991. Since that time, "We've had double-digit compound annual growth in the number of accounts established," she says.

Today, Fidelity Charitable oversees more than 59,000 donor-advised accounts with a total of $10.4 billion in assets. According to a recent Fidelity Charitable study of its own DAF program, nearly 40% of donors have accounts at least 10 years old.

In her current role for five years, Danforth says she's been introducing DAFs to friends and family alike. Their response is generally something like: "Why didn't I know about this sooner; I love this thing!" she says.

Kim Laughton, president of Schwab Charitable, another large national donor-advised fund organization, says DAFs "give people the biggest bang for their buck. When people establish a charitable account they say, 'I can't believe I didn't do this years ago!' "

DAFs became more popular starting about 20 years ago and have become the fastest-growing vehicles for giving in recent years, according to the National Philanthropic Trust (NPT), a public charity that advises donors, foundations and financial institutions on charitable giving. (See chart; for additional detail see the full report).


Charitable gift funds: A snapshot

Donor-advised funds have become the fastest-growing vehicles for giving in recent years

2011 2012 % Change
Assets under management $38.14 billion $45.35 billion 18.9%
Total contributions $10.19 billion $13.71 billion 34.6%
Total grant dollars $8.08 billion $8.62 billion 6.7%
Total number of DAF accounts 188,487 201,631 7.0%
Average account size* $202,341 224,921 11.2%

Source: National Philanthropic Trust | Data from 1,007 charitable organizations | *Average account size figures may not be precise due to rounding


John Pugsley, a retiree in Goodyear, Ariz., who established a DAF account with his wife, Maureen, about four years ago, notes their financial planner presented DAFs "as a simple way to make contributions to charitable organizations and it's turned out that way. They do all the work."

Among other things, the Pugsleys have used their DAF to make contributions to the Cystic Fibrosis Foundation (Maureen's nephew suffers from the disease); the American Cancer Society (John is a prostate cancer survivor); and the local arts center in Petoskey, Mich., where the couple spends their summers.

DAFs 101

Donor-advised funds are vehicles for charitable giving with roots dating back to the 1930s, when community foundations and Jewish federations opened the first donor-advised fund accounts. Here's how they work: A donor makes a contribution to a firm or organization that offers donor-advised funds and takes an immediate tax deduction for that calendar year.

The contribution can be cash, appreciated stocks or bonds, real estate or a mix of assets, depending on the individual fund. The entity offering the fund can be a financial services firm, a community foundation, a university or another tax-exempt organization. After making the contribution, donors typically invest their account balance in mutual funds containing stocks, bonds and other assets. Some donors get access to other options such as individual stocks and bonds, depending on the size and type of the account.

The money grows tax-free. At any time — it doesn't need to be immediately — a donor can advise the DAF provider to make a grant to a charity of their choice. The DAF provider handles the rest — including ensuring that the charity is an IRS-qualified nonprofit organization, cutting and mailing the check and keeping records for the donor.

Both Fidelity Charitable and Schwab Charitable charge an annual administrative fee of 0.6% on accounts with less than $500,000 in assets; fees decline as account size grows. The Chronicle of Philanthropy, a publisher tracking the business of charitable giving, reported last year that administrative fees at a range of DAF providers fell between 0.5% and 1.25%.

More personal finance

Looking for guidance on taxes, saving for college or ways to manage your money?

You don't have to be super wealthy to set up a DAF, although some very wealthy people do, instead of creating a private foundation, also known as a family foundation. At Fidelity Charitable, the median account balance totaled $14,450 last year, according to the study.

"We have a large number of accounts under $25,000," Danforth says. "But we also have a significant number above $100 million." At Schwab Charitable, accounts range from $5,000 to more than $600 million.

"The people who start donor-advised funds come from all kinds of backgrounds," says Sarah Harrison, deputy vice president of philanthropic services at the Denver Foundation, a community foundation with $600 million in total assets. Of that total, $300 million are invested in about 600 donor-advised fund accounts.

Similarly, DAFs are suitable for young and old alike. "Last year alone I set up a fund for a 26-year-old who had inherited money from his grandparents," Harrison says. "We've had people who retired from the financial services industry who want to make charitable investing their second act."

Why DAFs are popular

Less paperwork: Making charitable contributions through a DAF, rather than contributing to each charity directly, streamlines recordkeeping. The DAF provider handles the paperwork and recordkeeping. You receive one statement showing all your contributions for the year. "It adds an extra layer of comfort," says Sharon Nokes, a Washington attorney specializing in tax matters at Caplin & Drysdale.

Tax benefits: With a DAF, you get an immediate tax deduction regardless of when you decide what charitable groups get the money. Deductions are capped at 50% of adjusted gross income for cash contributions, and up to 30% of AGI for appreciated assets like stocks, mutual fund shares or real estate. Check with your tax provider for help with your personal situation.

Lower costs vs. private foundation: A DAF can be set up immediately, while a private foundation can take weeks or months. The startup costs are zero while legal and other fees for establishing a private foundation can run from $10,000 to $15,000.

"We use the analogy that setting up a private foundation is like setting up a bank, while setting up a DAF is like opening up a bank account," Fidelity's Danforth says.

"For many donors, a DAF is a good alternative to setting up a private foundation or a family foundation," adds Nokes, the Washington attorney.

Budgeting, managing taxes: John and Maureen Pugsley say contributing to a DAF once a year means they know exactly how much they're contributing, versus writing checks to various charities over the course of a year.

"It makes it so much easier to budget," John says. "You're doing it with some sort of financial planning in mind." The Pugsleys' financial planner — Bert Whitehead of Cambridge Connection Inc. in Franklin, Mich. — notes you can use a DAF to offset any taxes you might owe from a sudden financial windfall, like a bonus or the sale of a business.

More flexibility on donations: "Most individual charities aren't set up to take individual stock transfers," Schwab's Laughton says. With a DAF, as long as you've held the asset for a year, you can donate just about any publicly traded security.

The assets you can donate, depending on the DAF's policies, include real estate; the cash value of a life insurance policy; hedge fund positions; or shares in a privately held company.

The asset's value is determined when it's sold in the market. In the case of real estate or a piece of art, a professional appraisal may be required. What's the most unusual asset Schwab has accepted? "We received a partial ownership interest in a professional football team," Laughton says.

While DAFs may not be for everyone, they do offer advantages if used wisely.


Roger Fillion is a contributing writer to Fidelity Interactive Content Services, a provider of objective investing content on Fidelity.com.


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