PersonalFinance and Health Today

DonorAdvised Fund

Charity

Aristotle, who was no dummy, once complained that it was a real pain to give money away effectively. Jane Miller will testify that times haven't changed much in that regard. Miller, a stay-at-home mom, and her husband, Charles, a professor, inherited an amount in the low six figures last year. The couple, who live outside of Lincoln, Neb., immediately set aside $35,000 for philanthropy, but they were stumped about what to do with it. Their solution: a donor-advised fund. It allowed the Millers to take a tax deduction, invest the money so it continues to grow and make grants whenever they are ready. "I just love everything about it," Jane says.
Donor-advised funds now hold assets of more than $22 billion, up more than 30% since 2005. Offered primarily through community foundations and charities set up by financial firms, they're all the rage with folks who don't have millions to justify a private foundation; the minimum to open a fund is typically only $5,000 to $25,000. And donations don't have to be in cash: Donors can contribute long-term appreciated securities or even real estate, thus saving on capital gains taxes. A beneficiary who gets a gift of stock or property can even dodge taxes entirely by putting the gift directly in one of these funds.
The Millers went with the Vanguard Charitable Endowment Program, in part because its total fees average less than 1% a year. Fees in the industry are typically slightly higher; steer clear if they exceed 2%. Unlike private foundations, which are required by law to give away at least 5% of their assets each year, donor-advised funds are not legally bound to a minimum grant, although many funds require at least one gift every seven years. In November the Millers made their first grant, anonymously, to the family of a man dying from Lou Gehrig's disease.
These funds are part of a larger shift in philanthropy in which donors strive to stay involved and get maximum bang for their buck, says Gene Tempel, executive director of Indiana University's Center on Philanthropy. Challenge grants, in which a donor agrees to make a contribution if the charity can raise an equal amount from other sources, are another popular tactic. Jack Richmond, owner of all 31 Pizza Hut franchises in San Antonio, makes a $100,000 challenge grant each year to a different local charity. In 10 years, only once has the charity come up short — usually, the organization raises $150,000 or more. "It energizes the group and all its volunteers," Richmond says.
Due diligence is a key component of the giving process. Charitable-giving consultant Gail Shapiro recommends meeting with the organization's executives and saying, "Exactly how would you use this money?" The web site givewell.net features in-depth investigations of the effectiveness of certain charities; you can find related data at guidestar.org and charitynavigator.org. One downside to donors' directing their giving to pet projects: It has left many charities unable to keep the lights on and pay the staff. To do the most good with your gift, consider a supplemental donation toward operating expenses. "You would be hailed as a hero if you came in with a gift like that," says Tempel.

posted by MobyGrape @ 7:10 PM