Tax and Financial News for October 2015

Smarter Charitable Giving

Many donors who give substantial sums regularly or on occasion often make the same mistake – not having a plan. Donor-advised funds offer a great way to give with a plan.

Donor-advised funds are charitable giving vehicles administered by a public charity. They are created to manage charitable donations on behalf of organizations, families or individuals. In order to participate in a donor-advised fund, the donating individual or organization makes an irrevocable contribution of cash, securities or other financial instruments. While the donor surrenders ownership of whatever they place in the fund, they retain advisory privileges over how their account is invested and how it distributes money to charities. Further benefits of a donor-advised fund include flexibility in grant recommending and the ability to remain anonymous.

Some of the key characteristics of donor-advised funds are:

  • Upfront tax deductions for cash donations of 50 percent and 30 percent for appreciated assets
  • Eliminating capital gains on long-term appreciated stocks and other securities
  • The ability to accept a variety of assets, including nearly any type of financial instrument
  • Professional investment management services
  • The ability to name successors

An effective approach to donor advised fund giving involves the following four-part plan:

  1. Create A Mission Statement. Fewer than one in three donors who gift greater than $100,000 a year have a mission statement or written goals for giving. Those who give $25,000 or less per year plan even less often – only 16 percent of the time. Mission statements help provide a clear direction on what grants to make and what to decline. A mission statement does not need to be long or complicated. Even just a few sentences that encapsulate your giving philosophy can help keep plans on track and make sure your money goes to the type of causes you care about.
  2. Make An Action Plan. Research charities of interest, create a giving budget and explore ways to leverage giving by establishing legacy gifts.
  3. Test Potential Grantees. Learn more about the organization’s programs, goals and needs with questions such as, “What is your most successful program and why?” You can also assess their resourcing and opportunities by asking things like, “What do private donations allow you to do that other funding sources do not cover?” This will help you give effectively and efficiently.
  4.  Maximize Your Impact. Donors who learned about giving from their parents are more likely to pass it on and teach their own children the importance of giving. Ways to instill and cultivate the importance of giving in children can include things such as providing an allowance allocated to three parts: spending, saving and giving – or family traditions such as volunteer days.

Ultimately, having a plan, mission and purpose are what will drive your giving to maximize its potential impact. Donor-advised funds are not the only way to go for big or regular donors; however, they offer a flexible structure and many management and tax advantages over giving directly to charities on your own.

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