spending

Philanthropy Made Easy

You don't have to have billions, like Warren Buffett or Bill Gates, to improve the world through philanthropy. Millions of Americans do it on a smaller scale each year, and a lot of them are creating their own mini foundations with no legal hassle.

Like most Americans, I get great joy from charitable giving -- sharing my material blessings with organizations that make this a better world. But a few years ago, as my list of charities grew longer and longer, I began to feel overwhelmed by the complexities of active philanthropy.

There was writing and mailing checks, many of which required explanatory cover letters; hurriedly deciding at year-end which of my favored charities would receive donated shares of appreciated stock or mutual funds; doing the paperwork for those asset transfers to a dozen different grantees; and keeping all the records for my tax preparer.

Relief at last

Today those hassles are history, and I owe it all to the giving account I opened with a donor-advised fund (DAF). Donor-advised funds have done for philanthropy what online brokers did for investing and online banking did for bill-paying.

Why do I love my DAF? Let me count the ways. First, it's a snap to use. I can make a donation ($250 or more) from my online account in 60 seconds, and my DAF will mail it with a cover letter, which I can customize -- for example, by earmarking the gift for a particular purpose.

I also like the tax advantage my DAF offers me. When I make a charitable donation of appreciated assets to my DAF (avoiding the capital-gains tax), I get an immediate deduction, but I don't have to decide right then which charities will eventually receive my money. The DAF will sell my donated assets, park the proceeds in my account and invest them as I instruct. I can take my time -- a few months or a few years -- to decide on disbursements.

Record-keeping is simple. My donor-advised fund creates a searchable database of my past giving. I can see at a glance when, how much and for what purpose I gave.

Finally, my privacy can be protected, if I choose. Because checks and cover letters come from the DAF, my identity can be shielded from the charity (if, for example, I'd rather not receive its solicitations).

In short, using my donor-advised fund is like having a private foundation, but without the legal red tape, such as annual tax returns.

Many DAFs will set up an account with a minimum donation of $10,000, replenished with additional contributions of $1,000 or more. Typical annual fees run no more than 1% of the account balance. I consider this a great bargain for the time and trouble saved.

You may be wondering what "donor advised" means. It means that you may only suggest to the DAF that its trustees make a certain grant on your behalf. In practice, a DAF will honor your recommended grant to virtually any tax-exempt charity.

Many DAFs allow you to extend this grant-advising privilege to others after your death. So if you leave a bequest to your DAF in your will and name your children as successor advisers, you can instill in them your passion for philanthropy. And you can name your DAF account as you wish (for example, The Smith Family Charitable Fund).

Where to go

Many different kinds of organizations run donor-advised funds, among them community foundations (multi-donor local and regional funds), giant financial-services firms (Fidelity, T. Rowe Price, Raymond James, Charles Schwab, Vanguard and others), and nonprofits such as universities and churches. American Endowment Foundation is the rare national DAF not affiliated with a financial-services company or particular charity.

DAFs run by individual charities sometimes charge no annual fee, but they typically require that a portion of the money in your account -- say, 30% -- go to them.

To compare different DAFs, do a Web search for "donor-advised funds." It will be time well spent.

Columnist Knight Kiplinger is editor in chief of Kiplinger's Personal Finance and of The Kiplinger Letter and Kiplinger.com.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
11 Best Healthcare Stocks for the Rest of 2021
healthcare stocks

11 Best Healthcare Stocks for the Rest of 2021

The 2020s could be the decade of healthcare stocks. Here are 10 companies and one ETF to watch not just for the remainder of this year, but well beyon…
July 13, 2021
Warning: You May Have to Pay Back Your Monthly Child Tax Credit Payments
Tax Breaks

Warning: You May Have to Pay Back Your Monthly Child Tax Credit Payments

Unlike stimulus checks, you might have to repay your monthly child tax credit payments if you get too much money from the IRS.
July 16, 2021

Recommended

2021 Estate Planning Checkup: Is Your Estate Plan Up to Date?
estate planning

2021 Estate Planning Checkup: Is Your Estate Plan Up to Date?

Every so often, it’s smart to methodically go through your estate planning documents and see if any tweaks are needed. Here’s a checklist to guide you…
July 28, 2021
33 States with No Estate Taxes or Inheritance Taxes
retirement

33 States with No Estate Taxes or Inheritance Taxes

Even with the federal exemption from death taxes raised, retirees should pay more attention to estate taxes and inheritance taxes levied by states.
July 26, 2021
What to Consider When Deciding Between a Revocable and Irrevocable Trust
estate planning

What to Consider When Deciding Between a Revocable and Irrevocable Trust

There are important differences between the two types of trusts, including the amount of control you'll have over your assets.
July 14, 2021
What You Must Know About Tipping While Traveling
Travel

What You Must Know About Tipping While Traveling

Relax, you're on vacation. Use these six tips to establish a tipping plan that eliminates stress.
July 14, 2021