The Donor Advised Fund: Your Strategic Tool

Hello! I’m Steve French and I’m President of The Signatry. In my work in Nashville and the rest of the country, I devote my time meeting with advisors, attorneys, individuals, and business owners to develop strategies and solutions to minimize tax liability, while maximizing charitable giving. This is executed with specific emphasis in the area of non-liquid assets such as: stock, real estate, mutual funds, and portions of closely held businesses. One of the easiest ways to simplify this process is through the use of a donor advised fund.

Donor advised funds have exploded on the charitable giving scene in just a few short years. From 2003 to 2013, there was a whopping 186% growth in donor advised funds. Today, the top charities in the country are donor advised funds and by 2015, the donor advised fund world reached $80 billion in assets.

But while there has been a rapid increase in their use in the recent years, their history goes all the way back to 1914 when the first community trust was created in Cleveland, Ohio. This community trust allowed funds to go to the hands of the community trustees to spur on philanthropy in the common man. This innovation caught on and spread to other communities, and now includes commercial providers like Fidelity, Vanguard, Schwab, and others. And in 1980, the first Christian community foundations were established.

When thinking about being philanthropic, one used to have to go through the cumbersome process of setting up a private foundation, which involved legal costs and filing an annual tax return. Using a donor advised fund is the simple solution to this problem for the following five reasons:

1. They’re simple.  Donor advised funds are simple to set up and maintain.  You can open up an account online (or call The Signatry at 913-310-0279).  You can do all your giving through the fund and get just one tax receipt.
2. Easy administration.  With a donor advised fund, there are no tax returns.  You can do your giving online.  You make the gift, and you get the deduction.
3. Favorable tax treatment.  With a private foundation, you get to deduct only 30% of your income on an annual basis, whereas with a donor advised fund, the allowed deduction is 50% of income.  In addition, there are no excise taxes in a donor advised fund, unlike the private foundation.
4. Lower Costs.  In a private foundation, the cost of administration typically has to be borne by the founder.  Further, the annual tax returns and recordkeeping typically outweigh the cost of the donor advised fund.  Donors have to ask themselves, “How much is my time worth?” before taking on the cost of private foundation administration.
5. Community and creativity.  By becoming part of a Christian donor advised fund organization, Christians find the opportunity to celebrate together. And when Christians gather together, the creative energy of God’s people leads to new and creative ways to give.

Donor advised funds have been increasingly employed by even the ordinary giver because the accounts can be started for relatively nominal amounts.  They’re part of the growing trend of making generosity mainstream. I would welcome the opportunity to connect with  you further on how you can utilize this strategic tool!