BY: Aaron Jack
Chief Development Officer, Argent Financial Group
CEO, Heritage Trust
The holiday season is here, and for many people it’s a time to reflect on the positive events of the past year and to think about ways to support those less fortunate. Individuals and families who are looking for a better way to help charities that are making a difference should consider a donor-advised fund, an investment account that is designed specifically to support philanthropic organizations.
Donor-advised funds have become more popular over the years for a variety of reasons, but mostly due to favorable tax law changes and regulations on how a fund can be administered. Foundations, corporations and individuals donated $471.4 billion to U.S. charities in 2020, an increase of 5.1% over the prior year, according to USA Giving, a leading authority on charitable donations. Giving by individuals totaled $324.1 billion, rising 2.2% in 2020, with donor-advised funds being among the fastest-growing charitable-giving strategies.
In general terms, a donor-advised fund is an investment account that is legally held and administered by an IRS-recognized charitable sponsor. The sponsor, such as a 501(c)(3) nonprofit or philanthropic organization, manages the fund behalf of the donor, who also can have input into which organizations can receive financial support.
Donors can contribute cash, investment securities and other assets when establishing the fund and decide later as to when assets are distributed and to which charities. It also does not require a huge bankroll to start a donor-advised fund. In certain cases, our team at Heritage Trust has assisted clients with establishing a donor-advised fund with no minimum amount required and no minimum balance requirement to keep the fund active.
Donor-advised funds provide several important benefits for taxpayers. Those include:
1| Tax benefits: The donor receives an immediate tax benefit in the year the money is contributed to the fund.
2|Funding flexibility: The donor can either gift funds immediately or wait until later to decide which charitable organizations will receive funding.
3|Simplified management: A donor-advised fund lightens the administrative burden for the charity to manage how funds are distributed.
A donor-advised fund can also benefit different types of donors, such as:
• Families: A donor-advised fund provides several of the same benefits as a family foundation, but receives more favorable tax deduction allowances, and is usually less costly to manage.
• Anonymous donors: For those who want to preserve their privacy, yet still donate to worthy causes, a donor-advised fund allows individuals and families to maintain anonymity.
• Frequent givers: A donor-advised fund simplifies the giving process (less time deciding who receives financial support after the fund is established) and managing taxes (less time spent organizing receipts for tax purposes).
• Year-end donors: Donors do not have to rush to contribute to charities during the busy holiday season, and can spend more time planning a gift-giving strategy.
• Itemized taxpayers: Taxpayers who itemize deductions can “bunch” two years’ worth of charitable contributions into one year.
Read the full story here, originally published on Journalrecord.com December 29, 2021
