Bottom line: If you are paying capital gains tax and donating cash to charities in the same year, you’re wasting money. Giving appreciated securities can be a hassle, but a Donor Advised Fund makes it (more) convenient and simplifies other record keeping. Schwab, Fidelity, and Vanguard offer “free” accounts. Get one.
Donor Advised Funds (DAFs) have been gaining popularity recently, but they still don’t occupy their rightful place as the default choice for mid-level givers (those who give in the $5,000+ range across all their donations in a year).
A DAF is sort of like having your own foundation, but the money is pooled with other people’s, and bookkeeping records track who contributed what (and therefore, how much you can subsequently pay out to charitable causes). You make contributions (typically of appreciated securities) to the DAF on an as-needed basis, and then draw down the funds as you recommend grants to non-profits.
Why should you care about a DAF?
- It simplifies things for you. All your records are in one place, and you can get year-end or longer summaries of your giving. The deduction comes when you donate to the DAF (not when you recommend a grant to a non-profit), so you typically only have to track a smaller number of donations, rather than every $50 gift that you make over the course of a year. (Though the DAF keeps track of those for you, too…)
- It simplifies things for the agency you’re giving to. It’s a hassle for most small non-profits to get appreciated securities. But in order to avoid capital gains tax, you should be giving appreciated securities. Give them to your DAF, and let them deal with it. Your local non-profit gets a check, not shares of stock it then needs to sell.
- It allows you to be anonymous if you choose (and still get the deduction.)
- You can control the timing of the deduction separately from the timing of the gift. Donate to the DAF now, get your deduction now, and then recommend a grant from the DAF to your alumni association in 2 years for your 35th reunion year.
- Gifts cards (offered by Fidelity Charitable Gift Fund ) let you give someone else (a child or any other gift recipient) the ability to choose a non-profit where the donation goes. This can be a good way to introduce kids to the practice of charitable giving.
What does it cost?
Where can you get one?
|
Provider / URL |
Minimum Initial Contribution |
Minimum Follow-on Contribution |
Minimum Grant to Charity |
Offers “Gift Cards”? |
Base Fee |
|
Fidelity Investments |
$5,000 |
– |
$50 |
Yes |
0.6% |
|
Schwab |
$5,000 |
$500 |
$100 |
No |
0.6% |
|
Vanguard |
– |
– |
$500 |
No |
0.6% |
What are other requirements, drawbacks or hassles?
- As the chart above shows, you do need to have a fairly substantial amount ($5,000) to set up the accounts. If you give away at least that much in a year, and you have a brokerage account at one of these providers, then I’d say it definitely makes sense to set up a DAF. If you typically give $2,500 – $5,000 in a year, but want the convenience of a DAF, you might be able to “double up” and fund the DAF in December 2011 with the money that you would usually donate in 2011 and 2012. You can then make the grants to your chosen organizations over the course of the two years, so there’s no perceived difference to them. As the chart shows, once the account is established the minimums for adding to it are much lower ($500 or no limit).
- The processing done by the DAF provider will also typically take a few days to authorize a gift, so it’s not the best for truly time-sensitive things.
Steve,
Great suggestions. The Chocolate Dividends DAF has been a great tool for us to understand how to drive impact through charitable contributions.
In addition to the funds you mention, people might also want to consider the Calvert Foundation DAF. They really have been a leader in this space and offer some truly innovative options such as the Good Cap SEED fund that provides a kind of venture capital with an empahsis on the social return. http://www.calvertfoundation.org/give/donor-advised-fund.
Thanks for the pointer, Greg! I’m happy to include them in the list. My recollection is that Calvert was also one of the first groups that let individuals invest in microcredit loans, as well.
-SPK