#GivingTuesday: A Global Day for Giving Back

Consider whether a donor advised fund helps build a more generous world

The holidays are in full swing. Thanksgiving has concluded as well as two of the most widely known days of shopping. Springboards to the season of gift-giving.

Since 2012, the Tuesday after Thanksgiving is #GivingTuesday. This day allows us to come together for one common purpose: to celebrate generosity and to give back.

According to GivingTuesday.org, “35 million adults participated in many ways on GivingTuesday 2021 in the U.S., a 6% increase over 2020. Giving in the United States alone totaled $2.7 billion representing a 9% increase compared to GivingTuesday 2020, and a 37% increase since 2019.

And while the average online gift last year was a little more than $100, there are other ways to help jump-start your generosity, like donor advised funds

Donor Advised Funds

Giving frequent donations to charities may not be easy. Paperwork headaches, particularly related to taxes, abound. And while writing separate checks can still be a good option for small gifts, a popular alternative may make a lot of sense: the donor advised fund.

A donor advised fund is an account, maintained and operated by an umbrella nonprofit group, called a 501(c)(3) organization, set up by sponsoring organizations. You can open an account and give it any name you want, such as the “John and Jane Doe Foundation.”

You typically won’t have the expense and hassle of running a real foundation, which is the province of the wealthy anyway. Then, as the donor to the fund, you make contributions to your account. There is often a minimum contribution amount, such as $10,000, along with a minimum balance requirement. But because the Internal Revenue Service does not audit these accounts as it would a private foundation, they don’t have a separate tax ID or requirement to file a Form 990, as is the case with a private foundation. Since your contributions to these vehicles are irrevocable, the sponsoring organization has legal control of the fund.

However, with a donor advised fund, you as the donor advise the sponsoring organization on how to distribute the money and how to invest it in the meantime. The sponsoring organization typically invests the donor advised funds in a pool of mutual funds and sets the investment asset allocations. It also usually charges a low asset-based fee to cover administration costs.

As the fund’s advisor, you may direct the sponsoring organization to make specific donations to charities you favor. There is often a minimum donation amount from your fund, which is typically reasonable and can be as low as $250 per grant.

In addition, you may also choose successor advisors who make those recommendations when you can’t because of illness, disability, or death. This can be a fantastic tool for teaching your children the value of making gifts.

From a tax vantage point, you can get the same benefits with a donor advised fund as with writing a check. Because your contribution to your donor advised fund is an irrevocable gift to a 501(c)(3) supporting organization, you get full access to the standard charitable tax deduction.  The deduction amount that you claim is limited by the type of asset you contribute and your adjusted gross income. And the charitable deduction is earned in the year you contribute to your donor advised fund – not when you advise the sponsoring organization to send money to one of your favorite charities.

Let us know if you want to schedule a time to chat about whether a donor advised fund is a good option for you.