Charles Dickens has a scene in A Christmas Carol where two charity workers approach Scrooge on Christmas Eve:
. . . “a few of us are endeavouring to raise a fund to buy the Poor some meat and drink and means of warmth. We choose this time, because it is a time, of all others, when Want is keenly felt, and Abundance rejoices. What shall I put you down for?”
“Nothing!” Scrooge replied.
“You wish to be anonymous?”
“I wish to be left alone,” said Scrooge.
This year, he isn’t the only one. The Great Recession has resulted in many charities stepping up their funding drives to counter their falling revenues. In addition, Congress wants to pay for more and more social programs by raising taxes on the financially sound. The combination may make millions of people echo Scrooge’s wish to be left alone.
Nevertheless, there are millions more who want to give. Charitable giving, though, can be more complicated than it was in Scrooge’s time. For example:
- Would you like to claim a charitable tax deduction this year, but you haven’t had time to research which charity you want to support?
- Do you support a number of charities and would like to support even more, but find the new IRS requirements for documenting your gifts just too burdensome?
- Would you like to set aside a sum of money for your favorite charities that could generate an annual income forever, but assume forming a foundation or charitable trust is beyond your reach?
All the above are possible—and simple—with something called a donor-advised fund. This creates an easy-to-establish, low-cost, flexible vehicle for charitable giving as an alternative to direct giving or creating an expensive and complex private foundation. Donors enjoy administrative convenience, cost savings, and tax advantages by channeling their giving through an existing fund. Initial contribution amounts are typically $5,000 or more.
Let’s say you wanted to give small amounts to fifty different charities. Rather than write fifty checks and obtain fifty receipts to file with your tax return, you can make one gift to the fund, which distributes the money to the fifty charities. You only have to provide one receipt to the IRS.
You can also make a charitable gift to the foundation that will qualify as a deduction on your 2009 tax return, but you can delay the distribution of the funds until some time in the future. This gives you the write-off today while giving you time to explore the various causes you may want to support.
What really sets a donor-advised fund apart from other types of charitable giving is that you can decide how your donations are used, much as you would if you set up your own foundation. With the approval of the community foundation’s board of directors, you can create either an endowed or a nonpermanent fund for a particular purpose, such as a specifically-designated scholarship fund in memory of a loved one.
An example of a donor-advised fund is the Black Hills Area Community Foundation, which was started in 1987. It is a tax-exempt 501(c)(3) nonprofit organization that manages and administers charitable funds for individuals, families, businesses and nonprofit organizations in the Black Hills area. The BHACF supports scores of local charities and special projects. Any 501(c)(3) public charity qualifies for a gift from your donor-advised fund.
To find a similar fund in your area, just search the Internet for “community foundation donor-advised fund” plus the name of your town. It’s a good way to reduce administrative costs and inconvenience but still give to causes that matter to you.