Ask A Trust Officer
Dear Trust Officer:
Tell me about donor-advised funds. What are the advantages and disadvantages?
A donor-advised fund provides a mechanism for you to dedicate significant resources to charity, securing an immediate tax deduction, while leaving to a future date the identification of the specific charity for your philanthropy. Funds contributed to a donor-advised fund grow tax free. All contributions are irrevocable.
The donor-advised fund is sometimes considered as an alternative to a private family foundation. There is less regulatory overhead for the donor with the fund approach and no requirement that 5% of the assets be distributed each year. As a practical matter, however, about 20% of fund assets have been distributed each year, according to the National Philanthropic Trust.
Appreciated stocks are a good choice for contribution to a donor-advised fund, because the tax deduction will be based upon the fair market value of the securities on the date of contribution. Thus, the donor avoids capital gains tax on the built-in gain, yet gets a full charitable deduction.
In recent years, donor-advised funds have boomed in popularity. Assets in these funds nearly doubled from 2008 though 2013, reaching $53.74 billion, according to www.wealthmanagement.com. There are an estimated 217,000 donor-advised funds, up 34% over the past seven years.
Do you have a question concerning wealth management or trusts? Send your inquiry to Adam Cox, JD, MBA.
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