Start Your Own Charity

A donor-advised fund offers tax advantages. But a family foundation lets you call all the shots.

Irving Kempner, the son of Holocaust survivors liberated by the U.S. Army, shows gratitude for his good fortune by giving to the American Jewish Committee, the U.S. Holocaust Memorial Museum and other charitable causes. When Kempner, a 59-year-old retired corporate executive (he was a vice-president of Gillette and chief executive of LoJack, the car-security company), makes grants, he does so through the Kempner Family Foundation.Kempner's "foundation" is actually a donor-advised fund, an account designed for philanthropic giving that is administered by a charity. Donor-advised funds provide more-attractive tax advantages than private foundations and are usually cheaper to operate. If you want to set up a family charitable fund, a donor-advised fund will likely meet your needs. But for some people, a family foundation may be a better way to go.

One critical factor is how much and how often you give. For instance, you should expect to set aside at least $5,000 to start a donor-advised fund sponsored by a financial firm. Many community foundations can set up a fund for $1,000 or less if you give regularly. But it usually takes at least $250,000 in assets to make a private foundation worth the cost.

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Contributing Editor, Kiplinger's Personal Finance