I’m not the kind of person who enjoys researching different types of financial accounts for fun. But recently I learned about a type of account related to charitable giving that’s becoming increasingly popular: “Donor-Advised Funds”.
Here’s how it works: You set up a Charitable Giving Account with one of the major financial institutions. There’s a lot of options: Fidelity, Charles Schwab, Vanguard, and more companies have set up organizations to manage this.
Once you deposit money into your Charitable Giving Account, you’ve made your contribution. You are entitled to a tax deduction on that donation right away.
You decide how to invest that money while it’s in the account and waiting to be given out: you can pick different pools of bonds, money market accounts, etc based on your risk tolerance.
You get to pick when you disperse money from your account to charities. (This is called “making a grant”.) Different donor-advised funds have different rules about minimums you should give out. The idea isn’t to let it all sit there forever, but to disperse money regularly over time.
Why I wanted a Charitable Giving Account
This account will help me for a few reasons:
- I want one receipt for tax deductible donations. If anything makes it easier for me to get organized and not be scrambling to find a receipt, I’m all over it.
- I want the option for a simple process to donate stock. There can be a tax benefit to donating investments directly, rather than selling it and donating the proceeds.
- The account simplifies your estate/end of life planning. If you know you’d like to donate a certain amount of money to charity, this lets you just build it in its own fund which is not part of your own estate. You can specify how you’d like the funds to be dispersed in the case of your death, and even grant trusted family members the right to disperse the funds for you.
There’s also a nifty little perk with the Fidelity Charitable account: Gift4Giving eGifts. You can make a dispersement from your account to someone, who gets to give it to a charity of THEIR choice. (I laughed when I first read about this, because of course you get the tax deduction yourself. Only rich people could think this stuff up, right? But in some cases it is very nice to be able to give the gift of a charitable donation, and this is an easy way to do that.)
Setting up my account with Fidelity Charitable was easy
I set up my account with Fidelity Charitable. This was an easy choice for me because I’m already a Fidelity Customer: I started using them for a 401K years ago and they’ve always given me great customer service. The account has a $5,000 minimum initial donation, which was around my personal giving goal for the year.
I had a little hesitation at first because you don’t set this up directly in the Fidelity website. You’re technically creating a new account with a different organization: this is not the same Fidelity corporation. However, the accounts link up and setup was quick and painless.
After I got my initial donation set up, there were a few options about how to choose to invest my money. I chose to walk through a simple questionnaire about how much I want to give each year, how much I want to disperse each year, and my tolerance for risk.
Donor Advised Funds charge fees
The minimum initial contribution amount varies, and so do the fees charged by the fund. If you’re looking at a fund, read the guide about what they charge annually as well as when you make a contribution.
Fidelity Charitable itself is a 501(c)(3) and fees go toward salaries and other operating expenses. (Some of these salaries may be sky-high, I haven’t checked. I just looked at the fees and decided they were acceptable for my needs.)
You might not be able to give money to everyone you want
You can only make a grant to qualified charities. That’s usually public charities registered with the IRS in the United States.
If your employer “matches” donations you make, they may not match disbursements from your donor advised fund.
Why give away money?
I give away money because I’m pretty lucky in this world, and I can afford to share. It’s just something I want to do, and I’m happy to add a tool to my life that helps me be a little smarter and more organized about philanthropy on a real-world scale.