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Small grants lift charities in lean times

With money tight, more Americans draw from donor-advised funds built in past years.

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Pinched by a tough economy, Americans are making extra use of a tool that lets them fund favorite charities without touching their overworked checkbooks.

To the rescue in this difficult season are donor-advised funds. DAFs hold donations until donors authorize them to issue grants, sometimes years later, to other charities that then put the money to work. By using DAFs, donors get big tax deductions up front and then pace their giving over a few or many years.

This year, donors who created DAFs in the past are giving these instruments a workout. Both Schwab Charitable and the Fidelity Charitable Gift Fund report that grant amounts are up about 12 percent from a year ago.

"During good times, our donors have set aside significant charitable dollars, and now are able to tap those funds when they are needed most," says Schwab Charitable President Kim Wright-Violich.

Financial advisers caution, however, that DAFs don't make sense for everyone. And even those who wish they had DAF to tap right about now might find this isn't the best year to create one.

That's in part because a plunging stock market has left scores of would-be donors with losses in 2008. Without taxable gains that could be offset by charitable deductions, money experts say, donors lack an incentive to create or contribute to a DAF.

"For people who have a lot of losses and are not going to be in a high tax bracket, it's definitely not worth doing," says Penny Marlin, a financial planner in Del Ray Beach, Fla. "It doesn't make sense to do it if you're not going to get a significant benefit from the tax deduction."

Creating a DAF is easier than it used to be, but it still means jumping through a few hoops. Fidelity and Schwab, for instance, each require a minimum of $5,000 in cash or donated assets, such as appreciated stock. Both charge 0.6 percent in annual management fees for lower-end donors. Other institutions, such as community foundations and colleges, also allow donors to create DAFs, although minimum initial deposits plus restrictions and fees apply there as well. So for donors who give away less than $1,000 or $1,500 per year, the tax advantages and administrative services that DAFs offer may not be worthwhile.

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