Tax Breaks

Donor-Advised Funds: Contribute Now, Donate Later

Selecting a charity that will use your money wisely and effectively isn’t easy, particularly during this hectic time of year. Donor-advised funds are one solution. These funds allow you to make a charitable contribution now and claim the tax deduction on your 2013 tax return, but distribute the money later. The funds are ideal for busy people who want to give but aren’t sure which charities to support, says Martin Shenkman, a New Jersey lawyer who specializes in tax and estate planning.

See Also: Transferring IRA Funds to Charity

Interest in donor-advised funds typically swells in bull markets, and this year is no exception. At Fidelity, the number of new accounts in the first half of 2013 was up 43% over the first half of 2012. That’s because donor-advised funds are a tax-efficient way to donate taxable stock, mutual funds or other assets that have gained in value. You can claim a deduction for the entire market value of the securities. Your donor-advised fund will sell the securities and add the proceeds to your account.

The funds are a tax-break twofer. You avoid capital gains taxes, and the donor-advised fund doesn’t have to pay them, either, which means there’s more money available for charity, says Kim Laughton, president of Schwab Charitable. Some large donor-advised funds, such as Fidelity Charitable, also accept donations of illiquid assets, such as non-publicly traded securities and real estate.

You don’t need to be Bill Gates to contribute to a donor-advised fund. The minimum required to open an account at Fidelity Charitable and Schwab Charitable is $5,000; at Vanguard Charitable, it’s $25,000. Some community foundations offer donor-advised funds with minimums as low as $1,000.

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