Has your desire to help good causes outgrown writing yearly checks to a handful of charities? Maybe it’s time to reject that scattershot approach to philanthropy and start thinking about creating your own “mini foundation” by using a donor-advised fund. If you can afford to donate at least $5,000 to $10,000 to worthy causes, you could create your own charitable fund that behaves a lot like a big-shot foundation.
An easy way to gain entree into the ranks of charitable benefactors is by establishing a donor-advised fund with one of the hundreds of community foundations scattered around the country. When you contribute money or appreciated assets into a donor-advised fund, the community foundation acts as your eyes and ears in the world of good causes. Nonprofit community foundations, which got their start nearly 100 years ago, provide the training wheels for novice philanthropists.
A community foundation lets donors know where the deserving charities are in their area. Foundation staffers can pinpoint what charities need, whether it’s more books for a literacy program or blankets for a homeless shelter. They take donors on tours of various charities and suggest volunteer opportunities. Here in San Diego, for instance, a woman who used to teach swimming in her backyard wanted to help poor children who didn’t have an opportunity to swim. She had no idea how to find these kids until she established a donor-advised fund with a local community foundation. The foundation discovered that a Boys & Girls Club pool was closed for disrepair. After visiting the abandoned pool, the woman donated $50,000, which helped reopen it. She was at the pool when the excited swimmers splashed in the water for the first time in two years.
While community foundations provide opportunities for up-close-and-personal charitable giving, most of the donor-advised donations are being invested through investment giants such as Charles Schwab and the Vanguard Group. The marketing muscle and lower cost offerings of these firms have helped turn donor-advised funds into a mainstream product. The investment firms, however, do not provide the kind of advice about charitable-giving opportunities that community foundations offer.
Besides the intangible rewards you receive from helping, you may also receive tax benefits. Just like an outright charitable gift, the irrevocable contribution that you give to a donor-advised fund is tax deductible (assuming you itemize deductions). These funds are especially beneficial for appreciated stock or property because you also avoid capital gains taxes.