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Opening a Donor-Advised Charitable Fund


Donating stock and cash to your favorite charities can get you tangled up in a tax mess, so if you're in a giving mood, look to a donor-advised fund which can be set up to pay out years after your death.

Suppose you had $200,000 worth of shares in XYZ Company that you bought years ago for $20,000. Now you want to make a sizeable donation to some favorite charities. There’s more than one way to do it, say charity fund-raisers. One method is to sell the stock and donate the cash, but then Uncle Sam would nail you for a 15% capital gains tax on your profits. Another way is to donate the stock directly to the charities, which gives you a tax advantage, but could involve a lot of messy paperwork, especially if you’re donating to more than one charity. A third way is a donor-advised charitable fund.

With a donor-advised fund, the giving process is streamlined. You put assets into the fund and then advise the fund manager on the charities that you want to give money to. Donations can be distributed months and even years after you set up the fund, which allows the assets in the fund to grow. You get a tax deduction in the year you open the fund, however, just as if you were giving the money directly to charity, and you can deduct any additional contributions to the fund in the year you make them. You can also arrange to have the fund continue after you die by naming successor-advisors or designating ongoing donations from the fund.

There are some caveats. Since donations to the fund are irrevocable, they become the property of the fund. That means when it comes to distributing assets, your recommendations are subject to the fund’s approval. The fund will research the charities you suggest and may reject any donations to any charities that don’t conform to IRS guidelines.

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Victor J. Dzau, MD, gives expert advice
Victor J. Dzau, MD, gives expert advice