Bottom line:  If you are paying capital gains tax and donating cash to charities in the same year, you’re wasting money.  Giving appreciated securities can be a hassle, but a Donor Advised Fund makes it (more) convenient and simplifies other record keeping.  Schwab, Fidelity, and Vanguard offer “free” accounts.  Get one.


Donor Advised Funds (DAFs) have been gaining popularity recently, but they still don’t occupy their rightful place as the default choice for mid-level givers (those who give in the $5,000+ range across all their donations in a year).

A DAF is sort of like having your own foundation, but the money is pooled with other people’s, and bookkeeping records track who contributed what (and therefore, how much you can subsequently pay out to charitable causes).  You make contributions (typically of appreciated securities) to the DAF on an as-needed basis, and then draw down the funds as you recommend grants to non-profits.

Why should you care about a DAF?

  1. It simplifies things for you.  All your records are in one place, and you can get year-end or longer summaries of your giving.  The deduction comes when you donate to the DAF (not when you recommend a grant to a non-profit), so you typically only have to track a smaller number of donations, rather than every $50 gift that you make over the course of a year.  (Though the DAF keeps track of those for you, too…)
  2. It simplifies things for the agency you’re giving to.  It’s a hassle for most small non-profits to get appreciated securities.  But in order to avoid capital gains tax, you should be giving appreciated securities.  Give them to your DAF, and let them deal with it.  Your local non-profit gets a check, not shares of stock it then needs to sell.
  3. It allows you to be anonymous if you choose (and still get the deduction.)
  4. You can control the timing of the deduction separately from the timing of the gift.  Donate to the DAF now, get your deduction now, and then recommend a grant from the DAF to your alumni association in 2 years for your 35th reunion year.
  5. Gifts cards (offered by Fidelity Charitable Gift Fund  ) let you give someone else (a child or any other gift recipient) the ability to choose a non-profit where the donation goes.  This can be a good way to introduce kids to the practice of charitable giving.

What does it cost?

Not much.  Typically 6/10 of 1% of the assets of the fund are charged on an annual basis.  The trick is, you don’t really need to keep assets in the account.  You can, but mostly, you can fund the account just before you make a round of grant recommendations to your chosen charities, so the DAF itself has only a nominal balance.  In this case, the $100/year minimum fee kicks in (drawn from the DAF itself, so it reduces the amount you can give, but not an expense to you).  Money that you do have in the account istypically invested in some fund or mix (in a similar fashion to the investment options of your 401K, probably), and you pay the management fees on those funds in the same way that you do for a 401K (subtracted from the share price, again reducing the amount available for gifting, but not a direct expense to you.)

Where can you get one?

The major brokerages offer them as a service to their clients.  Here are 3 popular sources.

Provider / URL

Minimum Initial Contribution

Minimum Follow-on Contribution

Minimum Grant to Charity

Offers “Gift Cards”?

Base Fee

Fidelity Investments
www.charitablegift.org

$5,000

$50

Yes

0.6%

Schwab
www.schwabcharitable.org

$5,000

$500

$100

No

0.6%

Vanguard
www.vanguardcharitable.org

$500

No

0.6%

What are other requirements, drawbacks or hassles?

  • As the chart above shows, you do need to have a fairly substantial amount ($5,000) to set up the accounts.  If you give away at least that much in a year, and you have a brokerage account at one of these providers, then I’d say it definitely makes sense to set up a DAF.  If you typically give  $2,500 – $5,000 in a year, but want the convenience of a DAF, you might be able to “double up” and fund the DAF in December 2011 with the money that you would usually donate in 2011 and 2012.  You can then make the grants to your chosen organizations over the course of the two years, so there’s no perceived difference to them.  As the chart shows, once the account is established the minimums for adding to it are much lower ($500 or no limit).
  • The processing done by the DAF provider will also typically take a few days to authorize a gift, so it’s not the best for truly time-sensitive things.
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