Donor Advised Funds

Since the early 1990’s, when an organization or an individual wanted to funnel private money to charitable organizations, it was typical to set up a private foundation or an endowment with a particular nonprofit. However, private foundations require annual tax forms, can be expensive to run and difficult to diversify. Increasingly popular became the donor-advised fund.

So what is a donor-advised fund? A donor-advised fund allows a private entity, whether it is an organization or an individual, to place money in a variety of diversified investments at a low-cost. The donor can take an immediate tax deduction while continuing to control to whom the funds should be distributed later. These funds invest assets and make grants to charities from individual accounts based on donors’ recommendations.

The shift from private foundations to donor-advised funds has become popular for many reasons, including the immediate tax deduction mentioned above. They cost thousands of dollars less to maintain, operate as independent charities, and distributions do not have to be made as often as in a foundation. Also, donors can disperse funds in many different forms – cash, securities, and even tangible assets such as art.

As a nonprofit, it is important to remember all the different ways that donors can give to your organization. As the shift continues from private foundations to donor-advised funds, take the time to research how they work, and most importantly, how they can support your mission.

The Wall Street Journal, April 22, 2009