__There are many ways to support charitable organizations and many ways to make sure your gifts make a long-term, sustainable impact. One method that’s gained popularity over the past few years is called a donor-advised fund.__

Should you consider it?

The answer depends on your individual situation because donor-advised funds are not appropriate for everyone. However, if you’re in a position to make larger charitable gifts, you want to see what this strategy has to offer. A donor-advised fund provides the benefits of a managed portfolio, lower capital gains tax, and anonymity.

Here’s how a donor-advised fund works:

__Contribute to the fund__

You can contribute to your donor-advised fund with cash or marketable securities, which are assets that can be converted to cash quickly. If your contribution is tax deductible, you’ll get the deduction in the year you make the contribution to the fund. Of course, these contributions are still subject to IRS limits on charitable tax deductions and whether you itemize your deductions.

If you typically don’t give enough each year to itemize and plan on making consistent charitable contributions, you could consider combining multiple years’ worth of planned giving into a single donor-advised fund contribution and claim a larger deduction in that year. This move may be especially impactful if you have years with a higher amount of income, with an accompanying higher tax rate. If you contribute marketable securities, like stocks and bonds, into the fund, a subsequent sale of the securities avoids capital gains taxes, maximizing the impact of your contribution.

__Choose an investment__

Typically, donor-advised funds offer several professionally managed, diversified portfolios where you can place your contributions. You’ll want to consider the level of investment risk to which your fund may be exposed. And assuming all requirements are met, any investment growth is not taxable to you, the donor-advised fund, or the charity that ultimately receives the grant, making your charitable gift go even further.

__Choose the Charities__

You can choose grants for the IRS-approved charities that you want to support. You decide when you want the money donated and how it should be granted. You’re generally free to choose as many IRS-approved charitable organizations as you like. And the tax reporting is relatively easy — you don’t have to keep track of receipts from every charity you support. Instead, you can just keep the receipts from your contributions to the fund.

__Drawbacks of Donor-Advised Funds__

Although donor-advised funds clearly offer some benefits, there are important trade-offs to consider. For one thing, your contributions are irrevocable, which means once you put the money in the fund, you cannot access it for any reason other than charitable giving. And the investments you choose within your fund will carry some risk, as is true of all investments.

Also, donor-advised funds do have investment management fees and other costs. So, consider the impacts of these fees when deciding how you want to give.

__Donor-Advised Funds are a Unique Way to Support Causes that Matter to You__

In any case, you should consult with your tax and financial professionals before opening a donor-advised fund. And if the fund becomes part of your estate plans, you’ll also want to work with your legal advisor. But give this philanthropic tool some thought — it can help you do some good while also potentially benefiting your own long-term financial strategy.

__[Image](https://www.faithdriveninvestor.org/blog/is-a-donor-advised-fund-right-for-you)__ used with permission

Join a movement of investors, fund managers and leaders who believe that God owns it all and he cares deeply about why and how we steward his investments.

Faith Driven Investor

Articles

There are many ways to support charitable organizations and many ways to make sure your gifts make an impact.

GIVING | Nov 14, 2023

Is a Donor-Advised Fund Right for You?

By: Joe Gitto

Join a movement of investors, fund managers and leaders who believe that God owns it all and he cares deeply about why and how we steward his investments.

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