How donor-advised funds can help you meet your charitable goals

There is a saying in philanthropy that one should give their time (committing hours to volunteerism), treasure (making donations to causes) and talent (determining your unique gifts and using them to foster causes important to you).

My wife and I made a commitment many years ago to this. Through the years, we have targeted these three values supporting areas important to each of us, such as environmental causes and our beloved University of Minnesota.

We also made a commitment many years ago to donate a certain percentage of our income to charity. We did this long before we could arguably afford to, before we had children and were trying to see if our businesses would evolve into viable entities. This commitment, though, helped us to realize that regardless of how much or little we had, we had enough. There were times when our giving came before other things we wanted but could not afford, and through a few decades, it is now automatic and no longer a topic of discussion.

Our clients often make most of their gifts in December, sitting down with all the annual mailings received and talking about each one and whether it fits their charitable mission. They discuss how much to give and which areas they might no longer wish to support. They go to their donor-advised funds and begin requesting grants.

Clients might have two donor-advised funds: one through a community foundation and one through the brokerage where they hold their investments. While Evan Ramstad recently wrote a terrific column about the issues with donor-advised funds, let me make the case for why they can be so valuable.

While you might have committed to giving a percentage of your income, giving assets that have appreciated into your funds allows you to receive a deduction for the gift and avoid the capital gains taxes you would incur from selling those investments first. This benefit enhances your ability to give and makes it psychologically easier to do so.

The donor-advised funds provide an easy record of whom you have given to, how much and when. It is common for charities to constantly bombard you with asks to renew your giving, even though you might have just given a couple of months ago. Simply take each of these requests and put them in a file and set up an annual meeting with your partner where you print your record of giving from the donor-advised funds to match previous gifts and dates with current intentions.

Your commitments to giving might not always perfectly match your charitable intentions. There are years in which you might want to make sure you are meeting your percentage of income giving but might not want to give directly to causes. You might want to grow your donor-advised funds so you can make a larger gift supporting an upcoming capital campaign, for example.

Your causes likely continually evolve. Without donor-advised funds, you might have inadvertently given sooner to causes that are no longer important to you. You might have given sooner to charities you felt did not handle your donations properly.

Donor-advised funds are easy to use, but the “profits” from a community foundation’s fund can directly support your community. These funds are modestly clunkier than your brokerage fund, which often allows for immediate transfers from your brokerage account and immediate sales of those investments. Funds at discount brokerage firms can also be less expensive. But the fees you pay to the brokerage fund won’t benefit your current residency. If you have a fund at a community foundation and leave the community, you can request a donation from the community foundation’s fund into a new donor-advised fund created in your new community or even have it go to your existing brokerage donor-advised fund.

Ramstad’s article suggested people should not receive a tax break for money that isn’t going soon enough to charity because charities need money now. But the money eventually does make it to the charity. A hybrid approach can ultimately help the most money reach the charities.

You can give your time and talent today, but it is most effective to give some of your treasure both today and tomorrow.

Ross Levin is the founder of Accredited Investors Wealth Management in Edina. He can be reached at ross@accredited.com.