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How you can deduct now, give later

Want to share the wealth, but don't know where? Financial experts point to donor-advised funds as a good choice.

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Establishing an endowment for charitable distributions is no longer the exclusive province of the wealthy, thanks in large measure to intensifying competition in the financial services industry.

In October, the Fidelity Charitable Gift Fund cut the minimum amount required to open a donor-advised fund in half. Donors may now establish a fund, which is an investment account earmarked for charitable distribution, with as little as $5,000.

The move marks the latest volley in what's becoming a quest to manage the hundreds of millions that Americans collectively set aside each year to donate. On July 1, Fidelity dropped its fees from 1 percent per annum to 0.6 percent on all accounts valued under $500,000. That same day, Schwab Charitable matched Fidelity's new fee structure on accounts in that same size range.

All this jockeying is good news in terms of tax-saving opportunities and convenience for folks who don't have money to burn, according to financial planners and advisers who focus on charitable giving. In the process, systems are taking shape to make charitable giving a way of life in households where it hasn't always been.

"What we're seeing is further democratization of charitable giving in this country," says Doug Bauer, senior vice president of Rockefeller Philanthropy Advisors, a nonprofit consultancy in New York City. "This really makes organized philanthropy a part of people's lives."

For tax purposes, donor-advised funds function as a charity in their own right. Once the donor has made the contribution, the full amount is tax-deductible in that tax year. (It's also nonrefundable.) Donors can then wait months or years, while the investment presumably grows in value, before "recommending" a disbursement to a particular organization. Recommendations are pro forma. The organization holding the fund promptly cuts a check and sends it to any organization that meets IRS criteria as a legitimate charity.


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