What is a donor-advised fund?
There are many ways you can
leave a donation to charity as part of your estate plan. You can, for example, make charitable gifts in your will or designate a nonprofit as beneficiary of your 401K. You could also contribute to a donor advised fund or set up a trust for charitable purposes. You may not have heard of a “donor-advised” fund. We explain how they work and why they can be advantageous in more detail below.
Leaving Money to a Charitable OrganizationMaking charitable donations in your will is a great way to support a cause you care about. Wills are subjected to probate and it could take some time for your wishes to be fulfilled. If you want to avoid probate then a charitable fund
is the better option. Both of these options will allow you to maximize your donation by investing your money before you donate it. How Does a Donor Advised Fund Work
With the donor-advised funds, you basically set up an account with non-profit investment firms. You can choose one or more charities as beneficiaries and decide when and how your gift will be distributed. You can choose one or more qualifying organizations or charities as beneficiaries, and decide when and how your gift will be distributed.
What Are the Advantages of a Donor-Advised Fund?The contributions you make to a donor-advised fund during your lifetime are tax-deductible
. You can claim a tax deduction for your contribution to a donor-advised fund. Your donation will also avoid gift taxes, since the funds are going to a tax-exempt organization.
You can make donations (or grants) to your favorite non-profit any time you choose, and/or set up a legacy plan to continue making donations after you pass away. You will also have the option to make anonymous donations if you prefer.
Donor-advised funds also allow you to maximize your giving. You can increase your charitable contribution by investing a portion or all of your contributions.
- Any growth in capital is tax-free, and the trust will manage the investments for you.And, if you want to build a family legacy
- , you can name one of your family members as successor, so they can continue your good work.
- Examples of Donor-Advised Funds
- Scenario #1:
- Laura is a teacher who is passionate about providing quality educational experiences to all of the children in Arizona. She decides to create a donor advised fund that benefits Arizona Charter Schools Association. She invests her money to grow her capital and makes yearly contributions she can deduct on her taxes. She set up a legacy plan that grants the entirety of the fund to her chosen organization after she passes away.Scenario #2: Mark is a retired
military veteran
who wants to support other veterans in need. He creates a donor advised fund to benefit U.S. Vets Phoenix. This organization helps veterans and their families find housing, mental health care, and career development. He sets up a grant for a certain percentage of his pension and a grant that will last until the funds are all distributed. He does not want to be identified by name because he wishes to remain anonymous.
Incorporating charitable donations into your estate plan
If opening a charitable fund or a trust for a charitable cause is something you are interested in, speak to the experts at Phelps LaClair. We can help you create the best plan to support the causes that are most important to you. If you want to leave a lasting legacy,
give us a call to schedule a free consultation today.
Photo by
Lina Trochez on Unsplash
used with permission under the Creative Commons license for commercial use 8/13/2024.
