Secure Your Tax Benefit Now and Guide Charitable Efforts Tomorrow
Making a large charitable donation can be both a generous gesture and a strategic financial move. Donor-advised funds offer the unique advantage of immediate tax benefits with the ability to guide the future application of your donation, ensuring your charitable vision is realized over time.
You may have heard some tax-exempt organizations say this is possible through “donor-advised funds” or “advise and consult funds.”
What Are Donor-Advised Funds
Donor-advised funds—though they may bear the donor’s name—are not separate entities. These funds are bookkeeping entries only. They are components of a qualified charitable organization.
A contribution to a charity’s donor-advised fund may be deductible in the year it is made if it isn’t considered earmarked for a particular distributee. The charity must fully own the funds and have ultimate control over their distribution. You must get a written acknowledgement from the fund’s sponsoring organization that it has exclusive legal control over the assets contributed.
Advisory, Not Binding
Though the donor can advise the charity, which generally will follow his or her recommendations, the donor can’t have power to select distributees or decide the timing or amounts of distributions. The donor’s only input is to advise the charity of possible distributees, timing and amounts of distributions.
This right must be advisory and not binding. The charity is not required to follow the donor’s advice, but must retain complete discretion regarding the use of the funds.
Uses and Advantages of Donor-Advised Funds
- Gain control of the timing of charitable contributions or defer the selection of the ultimate recipient.
- Enable a convenient alternative to setting up a private foundation.
- Avoid the capital gain tax on the sale of appreciated securities by giving these securities to a charity’s donor-advised fund.
A major advantage of this type of gift is that the fund already exists. Since it is with an established tax-exempt organization, there is no need to apply for tax exemption. Additionally, no annual IRS filings are required.
Mutual funds operated by major financial institutions, as well as many community trust organizations, operate donor-advised funds. The fund may require a minimum initial contribution and may require that any recommended distributions be in excess of a minimum amount.
Concluding Insights: The Lasting Value of Donor-Advised Giving
Donor-advised funds stand out as a powerful tool for individuals seeking both immediate tax benefits and sustained philanthropic involvement. By choosing this giving method, you align your charitable endeavors with your financial planning, ensuring your generosity has a lasting impact.
If you need our help in arranging a contribution to a donor-advised fund, or if you would like to discuss any aspect of your contribution planning, please give us a call.
More Information
If you have questions, contact us to discuss your situation.
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James Curran
James Curran works with individuals and businesses and is passionate about getting to know his clients and their goals, both personal and professional. He spends time with them, helping to identify and solve their most pressing questions and concerns.
About Smith Patrick CPAs
Smith Patrick CPAs is a boutique, St. Louis-based, CPA firm dedicated to providing personal guidance on taxes, investment advice and financial service to forward-thinking businesses and financially active individuals. For over 30 years, our firm has focused on providing excellent service to business owners and high-net worth families across the country. Investment Advisory Services are offered through Wealth Management, LLC, a Registered Investment Advisor.
