Donor-advised funds offer terrific tax advantages, and have become a popular way for individuals and families to give to their favorite charities. But with the number of funds – and fund providers – growing each year, Wayne Titus of AMDG Financial says donors need to ask the right questions when choosing a suitable fund for their needs.
While millions donate to their favorite charities directly each year, a growing number of philanthropic-minded people are discovering donor-advised funds as an effective way to benefit charities and themselves. Donor-advised funds enable benefactors to set up and fund their accounts by making irrevocable, tax-deductible contributions to a charitable sponsor, and then recommend grants from the fund over time. But choosing a fund provider can be tricky, says Wayne Titus, CPA, PFS, AIFA®, founding member of AMDG Financial. “In the same way that other investments have hidden fees, donor-advised funds also can have fees that prevent donors from maximizing their charitable impact.”
People interested in using donor-advised funds should examine a variety of factors before contributing, says Titus. “For example,” he says, “some funds have minimum contributions and grant sizes. Others may limit the type of assets they accept, such as stocks or mutual-fund shares, and still others may restrict the types of funds in which donors can grow their charitable-giving nest eggs.”
Titus recommends that those interested in donor-advised funds set their own criteria with the help of an adviser, and then create a series of questions to help determine the best provider for their needs. “Donors should consider things like the type of assets they can donate, options to invest those assets, administration and other fees, account minimums and grant sizes,” he says.
While donor-advised funds offer many benefits, including an immediate tax benefit, some family stewards may ultimately prefer to set up a private foundation, which provides them with the ability to control every aspect of their charitable giving. “The choices are numerous, so it’s important to conduct the proper due diligence,” says Titus. Asking the right questions, he adds, can ensure a win-win for both the donor and the charity.