What is a Donor-Advised Fund?

As people accumulate wealth, some individuals may want to find an efficient way to give larger amounts of money as charitable contributions than what they might typically do with small donations of cash. Charitable giving is an excellent way to support nonprofit organizations, contributing to causes you’re most passionate about. You also may be eligible to deduct qualified charitable contributions from your taxes, thereby reducing your tax burden by way of generosity.

If you’re considering adding charitable contributions to your financial plan beyond what you can give via local donations of time or money, a donor-advised fund may help you in your philanthropic efforts.

What is a Donor-Advised Fund?

Donor-advised funds are private funds that manage charitable giving for individuals, families, and organizations. They are operated by a sponsoring 501(c)(3) organization, and they accept cash contributions along with non-cash assets like stocks, bonds, mutual funds, and S-corp or C-corp stock. There are no contribution limits to donor-advised funds, but some funds may require a minimum contribution to participate.

Donor-advised funds help individuals by curating a list of qualified charitable organizations and processing gifts to those organizations from the fund’s resources. Contributions to donor-advised funds are irrevocable, which means you cannot withdraw your gift. However, some donor-advised funds allow you to give to a charity pool immediately or opt to invest your gift for potential tax-free growth and give at a later date. 

Many donor-advised funds work to help individuals and organizations practice charitable giving regardless of their level of wealth. Because donor-advised funds are aggregated, many of them accept smaller contributions and have fewer associated fees and transaction costs.

After you make a charitable donation, the sponsoring organization assumes legal control of your assets. However, donors have advisory privileges over the donor-advised fund. According to the IRS, each donor-advised fund “is composed of contributions made by individual donors. Once the donor contributes, the organization has legal control over it. However, the donor, or the donor’s representative, retains advisory privileges with respect to the distribution of funds and the investment of assets in the account.”

How a Donor-Advised Fund Works

When choosing a donor-advised fund, consider its sponsor and its minimum contribution. You will retain advisory privileges over the fund, along with all other donors. In some cases, you can suggest which nonprofit organizations the fund should contribute to — in other cases, you’ll choose from a pre-selected pool.

After you’ve selected a donor-advised fund, plan your annual contributions. Keep in mind that your gift will be tax-deductible for the year in which you contribute, even if your fund allows those assets to be appreciated before doling them out to charitable organizations. This allows your donations to have an even greater impact in the future. Think of a donor-advised fund as an investment account for charitable purposes.

Is a Donor-Advised Fund Right for Me?

If you want to make a charitable gift or you’re looking for a way to reduce the administrative load of your donations, a donor-advised fund may be the right fit. Donor-advised funds are a good choice for:

  • Individuals who want to give as a family or involve future generations in philanthropy.
  • Organizations or individuals who want to avoid capital gains tax after the sale of property or investments.
  • Anyone who wants to see their charitable contributions potentially grow over time through an investment account of this nature to be distributed to charities over time.

Most donor-advised funds are excellent ways to engage in charitable giving, but it’s important to do your research. Talk to your trusted financial planner to find a donor-advised fund you that is right for you.

Find Trusted Guidance for Charitable Giving

Finding the right investment opportunities can be time-consuming and overwhelming, even when it comes to charitable giving. At Marietta Wealth, our advisors are here to help you navigate today’s complex financial marketplace.

Our wealth planning services will help you create and sustain a plan that works with your goals and your needs. We can help you build a more secure financial future — one that may have the potential to leave a lasting legacy.

To talk to a skilled advisor about your charitable giving options and learn if a donor-advised fund is right for you, schedule your appointment with Marietta Wealth today.

Marietta Wealth is a registered investment adviser.  Registration of an investment adviser does not imply any level of skill or training.  For additional information about Marietta Wealth’s financial planning and advisory services, please see the Marietta Wealth Disclosure Brochure or ADV Part 2A for full details, which is available upon request or by visiting our website. 

Certain of our representatives are Certified Public Accountants with the accounting firm Ben H. Crowe, C.P.A., LLC which is affiliated with Marietta Wealth Management. To the extent that these representatives provide accounting services, which may include tax advice, to any clients, including our advisory clients, all such services shall be performed by those representatives, in their individual professional capacities, independent of our advisory firm, for which services we shall not receive any portion of the fees charged by the representative, referral or otherwise. It is expected that these representatives, solely incidental to their practices as accountants, recommend our advisory services to certain of their clients. No client of Marietta Wealth Management is under any obligation to use the accounting services of these representatives. Our Chief Compliance Officer remains available to address any questions that a client or prospective client may have regarding this potential conflict of interest.

This article is not intended to be used, and should not be used, as the sole basis for legal advice.  The reader should seek and rely upon the guidance and advice of legal counsel before making decisions regarding any estate planning tools or documents.