Sound Advice On Donor-Advised Funds


Charitable giving in the United States has been, for the most part, on the upswing since the beginning of the decade. But some people these days want to do more than simply write checks to their favorite causes. One way to become more involved in the process is to set up a donor-advised fund.

These funds work pretty much as the name implies, giving donors more control than normal over contributions. Typically, you give money to a fund managed by a financial institution. A minimum gift of $5,000 or more may be required. Also, the fund may charge fees, based on a percentage of your assets in the fund (often charging from 0.5 to 1%), to cover administrative costs.

Then donors choose one or more charitable organizations to be potential recipients of their gifts. The fund reviews those selections to verify that the charity is eligible to receive tax-deductible contributions. Once the grant is approved by the fund, the money is sent to the appropriate charity, indicating that the contribution was made upon the donor-advised fund's recommendation. Gifts also may be made anonymously.

What are the tax benefits? The basic rules for charitable donations still apply. You generally can deduct monetary contributions in full, although the amount is limited to 50% of your adjusted gross income (AGI). Any excess may be carried over for up to five years. You also can claim a deduction for the fair market value of donated property you've held for longer than one year, but deductions for those gifts are limited to 30% of AGI. In either case, though, you get the deduction in the year you make the contribution, even if the money doesn't go from the donor-advised fund to the charity until a future tax year.

Keep in mind, however, that charitable deductions are among the itemized deductions that now may be reduced under the "Pease rule." The reduction is equal to 3% of the excess AGI over the indexed amounts of $261,500 for single filers in 2017 and $313,800 for joint filers (but not more than 80% overall). You may want to calculate how these reductions would affect the tax-saving benefits of your generosity.

Finally, it's important to remember you can't benefit personally from your donations to a donor-advised fund. For instance, you can't authorize the fund to pay for tickets to a fundraiser that you attend or use the assets to support a political candidate.

There are literally hundreds of sponsors of donor-advised funds. Before you commit to one, do your homework on the fund's background, policies and fees.

This article was written by a professional financial journalist for G.W. Sherwold and is not intended as legal or investment advice.

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