If you’ve ever wondered what is a donor-advised fund’s benefits – or even what the term means at all – you’ll be happy to know that it’s simply another tool to increase donations. In fact, this relatively new donation vehicle puts regular citizens on par with rich philanthropists such as Bill Gates and Warren Buffett.
Of course, not every donor option is right for every donor. And while IRS-qualified charities certainly benefit, it’s important to understand what this giving method means for regular people.
How Donor-Advised Funds Work
In a traditional charitable transaction, a donor simply makes a donation that the charity immediately receives and can make use of. While the process of donor-advised funds has some similarities, there are also glaring differences.
With a donor-advised fund, people place their donation into a fund that doesn’t immediately disperse it. In fact, they have the option of letting the donation just sit there for years. At some point, though, they’ll choose a nonprofit to forward the money to.
Why Would Anyone Do This?
It seems counterproductive to donate something that doesn’t immediately help a charity, right? In reality, this process can make donations even more valuable.
A donor-advised fund is essentially an investment vehicle. Whether someone contributes money, private stock, real estate or any other qualifying asset, it can immediately start earning money in the fund. That means the $100 donation you’re intending to give? It could easily be $200 or more when you finally decide to send it.
Benefits of Donor-Advised Funds
While there are opponents to donor-advised funds, the benefits are hard to deny. Here are just a few of the most obvious.
- Donations can immediately be written off taxes.
- Allows for anonymous donations.
- Donations can grow – similar to wealthy people using trusts.
- Setup costs are much lower than private foundations.
Are Donor-Advised Funds the Right Choice?
What is a donor-advised fund and who is it right for? To be honest, that question is more complex than the actual process itself. It’s difficult to find real disadvantages in their use, but if you’d like to know more about the giving vehicle, check out this donor-advised fund eBook to learn more.