Author: Todd Eckler, Executive Director of Fiduciary Trust Charitable (Todd also serves as CMO of Fiduciary Trust Company)
Donor-advised funds, thanks to their flexibility, low costs, and tax advantages, provide an attractive vehicle for individuals and families to establish giving strategies in pursuit of their charitable objectives. Fiduciary Trust Charitable offers donor-advised funds with unique benefits.
Charitable giving in the U.S. has grown substantially in recent years. The latest report from Giving USA highlighted that 2016 represented the most generous year on record, as families, estates, foundations, and corporations delivered approximately $380 billion in gifts to charitable causes. As giving has increased, the ways through which people give have also multiplied. One of the more notable vehicles is the donor-advised fund (DAF), which has grown in popularity over the past decade and now accounts for nearly 10% of all U.S. charitable giving.
The enthusiastic adoption of donor-advised funds is likely due to a number of factors, including their flexibility and tax advantages. For many families, they also help instill values across generations. These benefits are reflected in the widespread growth over the past few years. As of year-end 2015, there were more than 269,000 DAF accounts with assets of over $78 billion, representing year-over-year growth of 11% and 12%, respectively. Meanwhile, total grantmaking from donor-advised funds has grown by nearly 17%, which underscores the level of engagement that tends to typify most DAF account holders.
DONOR-ADVISED FUND OVERVIEW
For those unfamiliar with this vehicle, a donor-advised fund is sponsored by a public charity, such as Fiduciary Trust Charitable, through which an individual or family (the donor) establishes a fund for charitable gift purposes. The donor receives an immediate income tax deduction for contributions to the fund and can recommend that grants be made from the fund to IRS-qualified charities at any time. Once the donor gifts assets to the fund, the donor no longer has legal control of the assets. The fund can generally be invested in a manner consistent with the donor’s philanthropic goals and investment preferences.
THE BENEFITS OF DONOR-ADVISED FUNDS
Philanthropic initiatives can be accomplished through many different channels, so why choose a donor-advised fund? The following are some key benefits:
- Immediate income tax deduction for contributions, subject to IRS limits
- No capital gains tax on appreciated securities donated to the DAF if they’ve been held for more than one year
- No tax on income or capital gains on investments in the DAF
Influence and Family Legacy
- The donor can request the DAF to distribute funds to any IRS-qualified public charity
- The donor can designate individuals to request current or future distributions, even beyond the donor’s lifetime
- By designating family members as advisors, the family can come together on a long-term basis to make charitable grant recommendations, instilling values and strengthening family bonds
- Investments can be managed considering donor goals and recommendations to the extent possible, given the sponsoring organization’s overall investment policy
Flexibility and Convenience
- Contributions can be made to the DAF at any time, by anyone
- Grants can be made at any time
- Grants may be anonymous, if the donor desires, or given in the fund name the donor requests
- Typically significantly lower cost than establishing a private foundation
FIDUCIARY TRUST CHARITABLE OFFERS UNIQUE BENEFITS
Fiduciary Trust Charitable’s donor-advised fund offering is available to Fiduciary Trust Company (FTC) clients and through third-party advisors who have custody relationships with Fiduciary Trust. This donor-advised fund program offers unique benefits to FTC wealth management clients:
Clients benefit from their donor-advised fund being managed and supported by the same Fiduciary Trust Company officer as their other accounts with the firm. Statements and online information are also consolidated, and administrative paperwork minimized.
Charitable Planning Support
The FTC officer works with each client to establish the objectives of each donor-advised fund, both in terms of the near- and long-term charitable mission, as well as whether and how to involve other family members in grant and investment recommendations. If the client desires, this can include organizing periodic family meetings to discuss recommendations.
Tailored Investment Approach
Based on understanding the goals and time horizon of the donor-advised fund, the donor’s investment preferences, and Fiduciary Trust Company’s disciplined investment process, a tailored investment approach is developed for each donor’s fund.
Preferential Fee Structure
One of Fiduciary Trust Company’s core values is supporting charitable causes. Therefore, the firm is providing a discounted investment management fee for the donor-advised fund assets it manages. Fiduciary Trust Charitable’s administrative fees are also among the lowest in the industry. Note: A minimum $50,000 contribution is required to open a Fiduciary Trust Charitable donor-advised fund.
Ultimately, donor-advised funds appear poised to continue their steady growth. Not only does a donor-advised fund ensure that a family is able to give according to their shared values for generations to come, the enhanced tax benefits and possibility of investment growth allow donors to contribute even more to the causes they care most about. By setting up a donor-advised fund with a trusted advisor, families can reap the benefits of a great relationship and seamless giving structure while ensuring that their philanthropic efforts are maximized.
The opinions expressed in this article are as of the date issued and subject to change at any time. Nothing contained herein is intended to constitute investment, legal, tax or accounting advice, and clients should discuss any proposed arrangement or transaction with their investment, legal or tax advisers.