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6 advantages to a donor-advised fund

by The NonProfit Times - April 12, 2012

Donors have a number of options at their disposal when they want to contribute to a nonprofit. An outright gift is the most popular option, but they can also give via a private foundation. A third option, which offers the most control for the individual, is to create a donor-advised fund.

As defined by Ron Jordan and Katelyn L. Quynn in “Invest in Charity,” a donor-advised fund is a specifically named fun at either a charitable or for-profit institution. The fund can be permanently endowed and the donor can make non-binding recommendations to the organization as to how the funds are distributed.

There are types of donors for who this type of fund is best: Individuals who want to make substantial donations to a few nonprofits or individuals who want to make smaller donations to a large number of nonprofits. Jordan and Quynn list six advantages that these people will gain from creating a donor-advised fund:

  • Small Gift Minimums: Donor-advised funds can usually be established at for-profit organizations or community foundations for a small amount of money (i.e., $10,000).
  • Flexibility in Timing of Gifts: Donors can get an immediate charitable income tax deduction by donating to a donor-advised fund.
  • Tax Benefits: Tax benefits are more attractive than those of private foundations.
  • Administration: The fund is not required to file separate tax returns or accountings.
  • Resources: They bring more charitable dollars into the philanthropic community.
  • Investment: They may grow depending on investment performance providing additional support to the charity.

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