How To Support Your Favorite Charities With A Donor-Advised Fund
The holidays are a time of charitable giving. The joy and warmth that surrounds the weeks leading up to the new year leaves many of us in a more generous spirit. In fact, most charities receive the bulk of their annual donations during the holiday season. It’s a great time to give, but it’s important to consider how you give. There are certain tools and ways to make charitable donations that will stretch your dollars further. A donor-advised fund is one such charitable giving vehicle that will ensure the benefits of your donation are maximized.
What Is a Donor-Advised Fund?
A donor-advised fund (DAF) is similar to an investment account with the sole purpose of supporting one or more charitable organizations that are important to you. To set up a donor-advised fund, you simply make a tax-deductible donation into a charitable fund account that you establish with a financial institution or community foundation of your choosing. You will name the advisor and any successor advisors to the account, as well as the charitable beneficiaries. The advisor on the account directs how much and how often the funds go to the charitable beneficiaries.
Assets contributed to a DAF do not have to solely be cash. Individuals may contribute publicly traded securities, bitcoin, real estate, mutual fund shares, and certain complex assets (such as privately held C-corp and S-corp shares).
Your donation will then grow in your account tax-free based on your investment preferences. The assets accumulated in a donor-advised fund can be used to support virtually any charity that is qualified by the IRS as a 501(c)(3) public charity. To find out if your favorite charity qualifies, you can search through Guidestar, or call the charity directly and ask. Certain charities may also have that information available on their website.
Tax Advantages of a Donor-Advised Fund
A donor-advised fund is one of the most tax-efficient ways to conduct philanthropy and offers many tax advantages. You will receive a tax deduction for any gifts you make to your DAF. Furthermore, any growth in your fund will not be taxed, since those assets belong to the donor-advised fund’s charitable sponsor. Even if the assets are not immediately distributed to charity, you still get the benefit of the full tax deduction in the year you make the gift to your DAF. For example, if you create a DAF with an initial $5,000 contribution, you may structure the payouts to charity(ies) of $500 per year over ten years.
Donor-advised funds are particularly useful after a windfall situation such as selling a business or receiving a large inheritance. The tax deduction from contributions to a DAF will immediately reduce your tax liability.
There is also a tax benefit to donating appreciated stock, rather than liquidating stock and donating the proceeds. Stock donations can reduce an individual’s capital gains tax liability and marginal income tax. The example below illustrates the benefit of donating appreciated securities directly to charity.
Private Foundations Vs. Donor-Advised Funds
Private foundations are an alternative to donor-advised funds that aren’t as attractive. Private foundations are run like a business and ultimately costly and time consuming to maintain. Unlike DAF, private foundations require legal fees to set up, 1-2% of annual investment income is subject to excise tax, and many administrative responsibilities are involved. With a private foundation, assets must be managed, records need to be kept, and state and federal tax returns need to be filed. Donor-advised funds have less overhead, improved tax deductions, and greater grant flexibility.
The Best Donor-Advised Funds For Cambridge, MA Residents
If you’re interested in creating a donor-advised fund, our attorneys have compiled account information for the most popular fund options in Cambridge. You can use the information below to compare administrative fees, investment fees, and minimum requirements.
Cambridge Community Foundation
Minimums
To open an account: $10,000+
Additional contributions: any amount (must keep account balance of $10,000)
Grant to charity: $250+
Administrative Fees*
1.5%*
*As a public charity, administrative fees directly support the Cambridge Community Foundation’s grantmaking and civic leadership work.
Investment Fees**
.5%**
**Donors may select Cambridge Trust or US Trust/Bank of America as the Trustee bank for their DAF. Investment fees are assessed by the Trustee bank directly.
Bank of America Charitable Gift Fund
Minimums
To open an account: $25,000+
Additional contributions: $250+
Grant to charity: $250+
Administrative Fees
$0-$100,000: 0.9%
$100,001-$500,000: 0.75%
$500,001-$1m: 0.5%
$1,000,001-$2.5m: 0.35%
$2,500,001-$5m: 0.25%
$5,000,001+:0.15%
Investment Fees
0.12%-.54% (Published fee schedule by investment type)
BNY Mellon
Minimums
To open an account: $10,000+
Additional contributions: $250+
Grant to charity: $250+
Administrative Fees
First $500,000: 0.6%
Next $500,000: 0.4%
Next $1.5m: 0.2%
>$1.5m: 0.1%
Investment Fees
Varied by multiple factors (type, management) per published fee schedules not easily accessed
Fidelity Charitable
Minimums
To open an account: $5,000+
Additional contributions: any amount
Grant to charity: $50+
Administrative Fees
First $500,000: Greater of $100 or 0.6%
Next $500,000: 0.3%
Next $1.5m: 0.2%
Next $2,499,999: 0.15%
Investment Fees
0.015%-1.11% (Published fee schedule by investment type)
Morgan Stanley Global Impact Funding Trust
Minimums
To open an account: $25,000+
Additional contributions: $5,000+
Grant to charity: $250+
Administrative Fees
0.43%-0.59% (Published fee schedule by investment type)
Investment Fees
0.6%-1.24% (Published fee schedule by investment type)
Schwab Charitable (Charles Schwab)
Minimums
To open an account: $5,000+
Additional contributions: $500+
Grant to charity: $50+
Administrative Fees
First $500,000: Greater of $100 or 0.6%
Next $500,000: 0.3%
Next $1.5m: 0.2%
Next $2.5m: 0.15%
Next $5m: 0.13%
Next $5m: 0.12%
$15m+: 0.1%
Investment Fees
.0.4%-.99% (Published fee schedule by investment type)
The T. Rowe Price Program for Charitable Giving
Minimums
To open an account: $10,000+
Additional contributions: $500+
Grant to charity: $100+
Administrative Fees
First $500,000: 0.5%
Next $500,000: 0.39%
Next $1.5m: 0.18%
Next $2.5m: 0.12%
Next $10m: 0.10%
$15m+: 0.09%
Investment Fees
0.27%-0.59% (Published fee schedule by investment type)
TIAA Charitable
Minimums
To open an account: $5,000+
Additional contributions: $250+
Grant to charity: $50+
Administrative Fees
First $500,000: Greater of 0.6% or $100
Next $500,000: 0.3%
Next $1.5m: 0.2%
$2.5m+: 0.15%
Investment Fees
Gross Expense Ratio: 0.58%-0.86% (Published fee schedule by investment type)
Net Expense Ratio: 0.43%-0.56% (Published fee schedule by investment type)
Vanguard Charitable
Minimums
To open an account: $25,000+
Additional contributions: $5,000+
Grant to charity: $500+
Administrative Fees
First $500,000: 0.6%
Next $500,000-$70M: 0.35%
Investment Fees
First $500,000: 0.6%
Next $250,000: 0.35%
Building Charitable Giving Into Your Estate Plan
If charitable giving is an important aspect in your life, it’s worth incorporating gifts to charity into your estate plan. The estate planning attorneys at Eckert Byrne LLC can help you lay out your goals and determine which tools and planning strategies make the most sense for you.
A charitable remainder trust or charitable lead trust can reduce your taxable income and the taxes on your estate while also allowing you to donate to charity. In other cases, you can name a charity as the remainder beneficiary in your will or add a provision to a living trust that directs your trustee to make distributions to a charity of your choosing. Contact Eckert Byrne LLC today by calling (855) 743-3136 or filling out a contact form to schedule a consultation.