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Donor-advised funds investing

“Donor-advised funds are one of the fastest-growing trends in philanthropy in recent years. From 1995 to 1999, the assets of donor-advised funds grew by 231 percent”                -Chronicle of Philanthropy

America is a country with a huge heart. The tradition of charitable support by our citizens is unmatched in the world. Donations to worthy charitable groups occur daily. They can be in any form, from dollars going to bake sales and bell-ringing elves, to gifts to United Way funds and one-time large contributions to a favorite cause, charity or foundation.

    One of the most significant developments in giving has come about through “donor-advised funds.” A donor-advised fund is a charitable asset account created by an individual or a family. Contributions typically are made with cash or appreciated securities, although funding sources may occasionally be personal or real property. After contributions are made, the donor typically has the opportunity to choose from various diversified and professionally managed investment accounts.

    The contribution is immediately tax-deductible as defined by the tax codes. In general, deductions are allowed of up to 30 percent to 50 percent of adjusted gross income (your professional tax advisor should be consulted as to the tax treatment and what contributions are appropriate to your circumstances).

    Although the contributions result in an immediate tax benefit, the donor need not make charitable disbursements immediately. Funds can be invested to grow over time, which may allow greater gifts in the future. Many donor-advised funds require, by choice,

disbursements of five percent of the principal amount annually.

    Gifts from the donor-advised funds may be made at any time to a qualified 501©(3) organization. The important point is that the donor is allowed to select both the gift recipient and the timing of any gift. Indeed, family traditions of charitable giving can extend several generations through the appointment of successors to your fund.

    A donor-advised fund offers individuals and families a flexible vehicle for:

Philanthropic goals

Estate planning

Tax planning

    Assets donated to the fund are removed from the donor’s estate. You may donate appreciated securities to the fund, thus avoiding capital gains taxes that would have been incurred when the securities were sold. Although these tax and estate planning benefits are a motivating force, the true benefits are the charitable intent and control of the distributions to your selected worthy causes.

    Donations can be made to a donor-advised fund for as little as $10,000 initially. You receive many of the same benefits as a private foundation but without the expense, reporting and extensive regulatory requirements.

    The holiday season is fast approaching as well as the end of the calendar year. If philanthropic gifting is one of your goals, consult with a financial consultant or trust officer, as well as your tax advisor, about the creation of a donor-advised fund.

    Nancy Hadley is an Investment Representative with D.A. Davidson.


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Nancy Hadley

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