10 ways to use a donor-advised fund

Donor-advised fund Arlington

A donor-advised fund is a flexible and powerful philanthropic tool that enables donors to achieve a variety of charitable and tax planning goals in partnership with Arlington Community Foundation. A popular alternative to a private foundation, donor-advised funds enable charitably minded individuals, groups, and businesses to make contributions that are then invested in a charitable fund. Donors can recommend grants to charities in Arlington, the DC metro area, and beyond.

1. Capture capital gains for charitable purposes

By making a gift of long-term capital gain property such as publicly traded stock to a donor-advised fund, you avoid capital gains tax on appreciation and receive an income tax charitable deduction for the fair market value of the contributed securities. By giving from your assets rather than your income through a donor-advised fund, you can amplify your philanthropy in a tax efficient manner while benefitting your favorite charities with grants over time.

2. Simplify gift reporting: One gift, one receipt

You can centralize your giving and cut down on the number of tax receipts you need for annual recordkeeping by making one gift to your donor-advised fund. We issue a gift acknowledgment to you for tax purposes. Over time, you can request that grants be made out of your fund to charities that you recommend.

3. Terminate an existing private foundation

You created a private foundation many years ago and now circumstances have changed – whether through family changes or geographic dispersion, new charitable priorities or estate planning intentions. You can terminate your private foundation into a donor-advised fund at the Community Foundation and retain the best part of the foundation experience – focusing on grants and community impact. We take care of all of the administrative aspects of managing the fund. In most cases, a donor-advised fund will also be cheaper to administer than a private foundation and offer enhanced tax benefits as well.

4. Anonymous gifts

You want to support particular charities but do not want your name publicized. Creating a private foundation results in a public annual tax return searchable on the internet. You can create a donor-advised fund at the Community Foundation and request that grants be made anonymously (or not). Some of our largest donor relationships request anonymity so that they can decide when to be known, or not, to charities that they support.

5. Gifts of closely held shares, LLPs, or LLC interests

You might have charitable goals but illiquid and highly appreciated assets such as interests in closely held businesses, limited partnerships or limited liability companies (LLCs). We have experience in receiving such assets to facilitate a range of donor objectives. If given to a private foundation, such gifts are valued at their cost basis. Each gift carries its own complexities and issues – we work with you to analyze potential options that advance your charitable goals.

6. Create a philanthropic inheritance for your children now or through estate gift

You are thinking of how to create a mechanism to get your children, friends, or family members civically engaged, both now and in the future. You can create a donor-advised fund for your children individually or as a group from which they can suggest grants in the community – whether here or in other parts of the country. You can also name a donor-advised fund at the Community Foundation as the beneficiary of a retirement account, will, or Charitable Remainder or Lead Trust as a way of creating a “philanthropic inheritance” for your children, friends, or family members.

7. Real estate gifts

You might not have considered that your investment property, vacation home, commercial property, or other real estate interests can be used to support your charitable interests. You might contribute an apartment building into a Charitable Remainder Trust and retain income from the trust. You might execute a Retained Life Estate on your primary residence or vacation home and live in either for your life – with the property coming to the Community Foundation upon your death. A gift of real estate to the Community Foundation allows the donor to take an income tax charitable deduction for the full fair market value of the property contributed.

8. Engaging with family members in grantmaking

You like the idea of an annual family meeting to promote discussion, pass along your values, and enhance family relationships and dialogue. We can work with you to create a grants budget for your donor-advised fund that lets you suggest grants that you want to support as well as some that might be determined by consensus through a family meeting or a children’s committee. We can help with ideas on how to promote giving and philanthropy among family members and create a governance structure that fits your goals.

9. To endow or not to endow

A donor-advised fund is a flexible giving option. It can be created as an endowment, spending only a portion of its value from year to year with the objective of growing over time. It can be non-endowed and spend into its principal value from year to year and be supplemented with additional gifts from time to time. If you want to capitalize growth for several years to make a larger grant in later years, the fund is not required to make a grant distribution each year (unlike a private foundation). Whether you wish to grow your fund over time or consider funding options over multiple years, a donor-advised fund can accommodate your objectives.

10. Co-invest with our Community Fund

You are interested in particular charitable causes but are unsure which charity to select. We can share our professional insight into particular causes or organizations; share grant proposals that we receive that fit your interests or investigate charitable opportunities that might interest you. Whether you make grants directly to organizations from your donor advised fund or support these efforts through contributions to our unrestricted Community Fund, you can enhance your impact on the local community.

If you have any questions about donor-advised funds, or charitable giving in general, feel free to send us an email at info@arlcf.org at any time.

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