Journal-Advocate (Sterling)

Is a donor-advised fund right for you?

- By Edward Jones For use by Financial Advisor Ann Bowey

You can find many ways to support charitable organizati­ons. One method that’s gained popularity over the past few years is called a donor-advised fund. Should you consider it?

The answer depends on your individual situation, because donor-advised funds are not appropriat­e for everyone. However, if you’re in a position to make larger charitable gifts, you might at least want to see what this strategy has to offer. Here’s how it works: • Contribute to the fund. You can contribute to your donor-advised fund with cash or marketable securities, which are assets that can be converted to cash quickly. If your contributi­on is tax deductible, you’ll get the deduction in the year you make the contributi­on to the fund. Of course, these contributi­ons are still subject to IRS limits on charitable tax deductions and whether you itemize your deductions. If you typically don’t give enough each year to itemize and plan on making consistent charitable contributi­ons, you could consider combining multiple years’ worth of planned giving into a single donor-advised fund contributi­on, and claim a larger deduction in that year. This move may be especially impactful if you have years with a higher amount of income, with an accompanyi­ng higher tax rate. If you contribute marketable securities, like stocks and bonds, into the fund, a subsequent sale of the securities avoids capital gains taxes, maximizing the impact of your contributi­on.

• Choose an investment. Typically, donor-advised funds offer several profession­ally managed diversifie­d portfolios where you can place your contributi­ons. You’ll want to consider the level of investment risk to which your fund may be exposed.

And assuming all requiremen­ts are met, any investment growth is not taxable to you, the donor-advised fund or the charity that ultimately receives the grant, making your charitable gift go even further.

• Choose the charities. You can choose grants for the Irs-approved charities that you want to support. You decide when you want the money donated and how it should be granted. You’re generally free to choose as many Irs-approved charitable organizati­ons as you like. And the tax reporting is relatively easy — you don’t have to keep track of receipts from every charity you support. Instead, you can just keep the receipts from your contributi­ons to the fund.

Although donor-advised funds clearly offer some benefits, there are important trade-offs to consider. For one thing, your contributi­ons are irrevocabl­e, which means once you put the money in the fund, you cannot access it for any reason other than charitable giving. And the investment­s you choose within your fund will carry some risk, as is true of all investment­s. Also, donor-advised funds do have investment management fees and other costs. So, consider the impacts of these fees when deciding how you want to give.

In any case, you should consult with your tax and financial profession­als before opening a donor-advised fund. And if the fund becomes part of your estate plans, you’ll also want to work with your legal advisor. But give this philanthro­pic tool some thought — it can help you do some good while also potentiall­y benefiting your own longterm financial strategy.

This article was written by Edward Jones for use by your local Edward Jones Financial Advisor. Edward Jones, Member SIPC. Ann Bowey is an Edward Jones financial advisor in Sterling.

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