Eileen Heisman: Hi! I am Eileen Heisman, President and CEO of National Philanthropic Trust. Today I am going to explain how a Donor-Advised Fund works and some of the advantages that make them the most popular and fastest growing charitable giving vehicle.
The first step is to make an irrevocable contribution of personal assets. Once you make this contribution, the fund sponsor legally owns the asset. Many sponsors can accept a wide range of assets, such as real estate, patent rights, and alternative investments.
When you make this irrevocable contribution, you immediately receive the maximum tax deduction that the IRS allows. The asset you contribute will need to be sold. The charity will sell the asset and proceeds of the sale are placed inside your Donor-Advised Fund account. Then they will be invested and grow tax free. At any time afterward you can recommend grants from your account to qualified charities.
The biggest benefit of having a Donor-Advised Fund is simplicity. Usually there is little paperwork and no startup fee, and since the fund sponsor manages the account, you can focus on what's important, giving.
Tax benefits are another key feature of Donor-Advised Funds. You receive an immediate tax deduction when you make your contribution. By contributing certain assets, such as appreciated stock, you may reduce or eliminate your personal capital gains tax.
Other gifts, like a bequest, may have the same effect on estate taxes. Always consult with your tax advisor on your personal situation. Donor-Advised Funds are one of the few philanthropic vehicles that allow you to make donations 100% anonymously. Because the charity that sponsors the Donor-Advised Fund issues the grant checks, donors can choose to opt-in or opt-out of being recognized.
Many fund sponsors are also expert grant makers and they can help donors who might have questions about giving, such as recommending charities or grafting specialized grant agreements. For example, some agreements require that specific benchmarks are reached.
Donor-Advised Funds offer philanthropists a way to leave a giving legacy. Many fund sponsors allow a donor to name a successor so the legacy of giving can continue. Some allow all successors the option to appoint the next generation so the fund can exist in perpetuity.
And those are the basics of how a Donor-Advised Fund works.