May 2012 – A Donor Advised Fund

Have you ever thought about ….
Having your own Donor Advised Fund?

If you haven’t thought about it, don’t feel lonely.  We didn’t either until a Janaka donor suggested it to us.  Mr. and Mrs. Gee have been using theirs for quite some time and have found it an efficient and tax-effective way of supporting Ananda’s ministries and their other favorite charities, as well as naming the Janaka Foundation as a final beneficiary.

That is a lot of “bang for the buck,” so to speak, so we decided to explore it further and share our findings with you, our readers.  Perhaps you can find something in here that appeals to you and so act positively on it.

Donor-advised Fund
The concept behind a donor-advised fund has been around for quite some time now.  We’ve all heard of the Kresge, Rockefeller and Ford Foundations with millions and billions of dollars under management and with thousands and millions to distribute annually as grants.  Perhaps we live in a community with its own foundation that distributes grants to local charities.

It has only been during the last ten to twenty years that it has become financially feasible and possible for the “every man” donor among us to have and direct our own personal fund on a scale we can afford.  That happened when the big money managers and mutual funds saw thousands of dollars being withdrawn and sent elsewhere beyond their control.  They wanted some of the action and therefore devised affordable programs for the “every man” donor.

If you have your retirement and investment portfolio managed by a company such as Vanguard, Fidelity or T.Rowe Price, call them up or go on line to check it out. Everything you ever wanted to know about donor-advised funds is there, and then some. The differences between the fund managers are mainly on how much it will take to start your own personally named donor-advised fund and how many grants you can “advise” without incurring additional fees.

How it Works
Generally, it takes between 10 to 25 thousand dollars to fund your own account.  You can choose to fund it with cash or appreciated securities.  You can give it a name which reflects you, your family and/or the purpose for your giving.  You cannot call it a trust, foundation or endowment, because these are legal terms for other charitable giving vehicles.

The dollars you use to fund your account are no longer yours but must be used to fulfill charitable purposes.  Essentially, you are creating your own 501(c )3  charity.  You can “advise” the managers of your fund (hence the name “advised” fund) to direct all or parts of the fund to other qualified public charities.  It is up to the fund manager to determine if the recipients of those grants (what your charitable gifts are now called) are public charities according to the rules of the IRS.

You are limited as to the number of grants per year that you can “advise” and the size of the grant you can request without incurring an additional fee.  You can determine how the funds are to be invested, choosing from a pool of funds that satisfy your investment strategy.

You can choose how many of your family members or associates can “advise” regarding grants, who can also contribute to your fund and who can “advise” regarding the investments. You can decide who are the successor advisors – your spouse, child or children, close associate and friend – once you no longer are able to carry on these responsibilities.

The Advantages
Donor-advised funds are changing the way many Americans support the charities they believe in, similar to the way 401(k)s and IRAs changed the way we save for retirement.  They are:

Easy to Establish. I suspect most of our readers, who have saved and invested over the years with established companies, would be able to do this over the phone or online and transfer the necessary funds.

Tax-efficient. Most of us understand the principle behind giving appreciated securities – taking the current full-market value of the securities (not what they cost originally) as our tax-deductible gift.  It is much easier to do this once through the company that is already managing our assets than to do this multiple times in smaller increments to the various charities we support.

Tax-effective. There is a saying, “Plan your work and work your plan”  Carrying this over to our personal philanthropy, we can plan our giving so that we are able to give more by planning ahead through a donor-advised fund than we can without having such a fund.  For example, by “bunching” our allowable tax-deductions as much as we can in a single tax year, including our charitable deductions, we can take the standard deduction in the next year.  This is especially important for donors who rent or who have paid off their mortgages and therefore do not have these high deductions.

Build Toward a Family Legacy. Not all of the assets with which you fund your account have to be given in that year.  All or a portion of them can be allowed to accumulate so that you and your successor advisors can continue to make gifts to your favorite charities for many years to come.  Additional tax-deductible gifts can be made in future years.

Two Caveats: #1, there is no second deduction for a distribution or grant from your fund when it ultimately is made to your favorite charity.  We only get our ticket punched once.
#2, once you fund your own account, you cannot take it back or use any portion of it for personal use, for the benefit of a friend or family member, or to fulfill a personal pledge.

Appealing
What kind of donors would find having their own donor-advised fund appealing and therefore worth the effort to fund such an account?

Generous. Donors who want to do as much as they can with whatever blessings they have been given.  And not just from what they are currently earning but also from what they have accumulated over a lifetime.

Compassionate. Donors who care and share.  It is as simple as that.  Where there is a need, they want to help. Where there is an opportunity to help, they will lend a helping a hand.

Thoughtful. Sometimes all it takes to be part of a project is to open one’s wallet or purse.  Other times it takes planning, doing things now that will have a long-range impact.

Conclusion
There is more than one way to accomplish a goal.  Columbus wanted to discover a new trade route to the East, so he sailed west.  Unfortunately – but fortunately for us – the North and South American continents got in the way.

There is considerable merit in funding one’s own donor-advised fund.  It takes planning ahead.  It takes discussing your charitable objectives with family members, especially if you want them to support and continue your personal philanthropy.

We hope that you have found these insights into the donor-advised fund helpful and that you will continue to regard Ananda and the Janaka Foundation as one of your favorite charities.