Donor-advised funds can maximize the tax advantages of donating appreciated securities. Such funds, long offered by local community foundations, are now promoted by major financial institutions such as Fidelity Investments, Vanguard Group and Charles Schwab. A donor-advised fund combines immediate tax deductions with deferred charitable giving. Donors make irrevocable gifts (typically with a $10,000 or $25,000 minimum) to the fund and take an upfront write-off for the full value, in most cases. The actual charitable donations may be spread out over a period of years.
Once the securities are donated they’re sold by the donor-advised funds, which don’t owe any tax on prior gains. Then the cash is invested in various accounts chosen by the donor. Thus, if donors pick accounts that perform well their contributions can contribute to grow. After the contribution, gifts to various charities may be made, with the amount and the timing chosen by the donor: there are no required distributions. Donor-advised funds generally impose a minimum amount for gifts, perhaps $250 or $500. Donations can be made to any of 650,000 charities approved by the IRS. They may be very specific-one fund made a gift to a municipality for a Little League field, for example-but there can be no personal benefit. That is, you can’t tap your account to buy a table at a charity breakfast or pay for a cruise bought at a charity auction.
