How to Set Up a Donor-Advised Fund

Many brokerage firms, mutual fund companies and community foundations offer donor-advised funds, which allow individuals, families, businesses and agencies to make charitable contributions, get immediate tax benefits, and grant the money over time to nonprofit organizations and areas of interest.

Donor-advised funds are becoming increasingly popular investment vehicles for San Diegans, especially if you want to:

• Avoid capital gains tax from a recently-sold business, privately-held stock or other asset
• Ease the burden of managing your own private foundation
• Protect your inheritance from federal or state taxes
• Expand your investment portfolio
• Fund a specific social cause
• Improve your business sector
• Add more meaning or purpose to your life
• Maximize your giving
• Leave a family legacy through funds and philanthropic values

Several factors such as minimum fund requirements, fund fees, community impact and support staff may impact whether you decide to open your fund at a commercial institution or a community foundation.

It’s important to remember, however, that while some commercial institutions may offer lower investment fees, they:

1. Provide little to no insightful community knowledge or local expertise about ways to maximize giving in your community
2. Do not share fee income generated by donor-advised funds with local nonprofits strengthening communities
3. Lack opportunities to connect like-minded donors, or participate in local programming that builds civic engagement and enhances community education and understanding

Conversely, community foundations are grantmaking public charities dedicated to improving the lives of people in a defined local geographic area.

How to Get Started

Donor-advised funds are powerful philanthropic vehicles because you are able to contribute any asset, such as cash, stock or real estate, to your fund, take an immediate tax deduction in that calendar year, then support your nonprofit, cause and community when you are ready.

To get started with donor-advised funds, you need to pick a charitable sponsor. That starts first with prioritizing the values most important to you in a philanthropic partner. Is it community knowledge? Community impact? Lowest fund fees? Investment performance?

Considering these questions will help guide your research in choosing the right charitable sponsor for you. As you explore commercial institutions and local community foundation partners, dive into website research, historical performance and impact. Most community foundations have Annual Reports that are easily scannable and summarize the most recent year of impact.

While some individuals may be ready to open a donor-advised fund online without assistance, others may want to have phone conversations and face-to-face meetings (online or in person) to get a better sense of their charitable partner.

When you have made your decision, you will need to complete the necessary paperwork to open the fund itself. Then, you can contribute to the fund with either cash or non-cash assets.

For cash, you can write a check or electronically transfer the funds from your personal account(s). For stocks and other appreciated assets, you can donate the assets directly to the fund to avoid capital gains tax altogether. Work directly with your philanthropic partner and financial advisors to arrange the transaction to maximize your tax benefits.

From there, charitable sponsors manage the heavy lifting from an administrative perspective, provide grantmaking opportunities and help you decide on investment strategies that increase the impact of your gift and create sustainable growth. Depending on the type of fund you set up, your assets are invested to maximize your return and strengthen your grantmaking and social good power.

If you’re interested in learning more about donor-advised funds and how to set up one for yourself, our team of experts can help.

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