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Donor-Advised Funds

A donor-advised fund is managed by a public charity for the purpose of distributing funds to other charities. The donor makes gifts to the fund throughout their lifetime and may make suggestions regarding the distribution of the assets to specific charities. The fund is in no way obligated to abide by the donor’s suggestions, however (although they often do). Additionally, the fund has complete discretion over how the contributions are invested. Again, the donor may make suggestions, but investment decisions are ultimately in the hands of the fund.

A contribution to a donor-advised fund is generally tax-deductible in the year it’s made. If cash is donated, the maximum deduction is typically capped at 60 percent of the donor’s adjusted gross income (AGI). If a donation of highly appreciated assets is made, the deduction is typically capped at 30 percent of the donor’s AGI.

A donor-advised fund may be an excellent vehicle for those who wish to donate a moderate to large amount of capital. The startup costs are usually low, and the minimum donation is generally $5,000 to $10,000. With many of these funds, the donor can advise the fund to make grants to multiple charities or to a single charity. Additionally, many funds do not have a minimum annual grant amount, which means that the donor’s principal may grow tax free over time.