Why We Use a Charitable Gift Fund

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Donation BoxA few years ago, I mentioned we were going to open up a Fidelity Charitable Gift Fund to help facilitate our charitable giving. When I was growing up, my parents didn’t do any charitable giving the way Americans do – donating to their favorite charities or philanthropies. For our family, our charitable giving was in the form of sending money back to grandparents and relatives. Anything “left over,” as if that existed, was saved so that we could pay for flights back to Taiwan to see those relatives. (nowadays it’s different, my mom and I have chatted about the charities we support)

So when my lovely wife started talking about making some charitable donations, I left it in her hands. I was just going to try to figure out how to donate the smartest way possible. That’s when I stumbled upon charitable gift funds.

Charitable Gift Funds

The basic idea is very simple – you donate into a fund and get the tax deduction immediately. Then you recommend grants to eligible non-profits and the gift fund makes the donations on your behalf. While the funds sit in the account, they can be invested in the options made available to the gift fund. We went with Fidelity but there are any number of options and they’re all very similar.

What are the advantages of gift funds? The tax benefit of making the donation today without having to decide where it goes. If you have a particular good year financially, maybe you want to donate a big slug of cash today and then decide where it goes over the next few years.

Or, and this is more likely, you have a stock you own that just went through the roof and you want to realize the gains (but don’t want to pay the taxes). You could the stock to the fund and deduct the fair market value of the stock. You don’t realize all the gain but you do get a nice deduction.

It’s great for planning too. You can make one contribution into the fund and only have to record one transaction when it comes to taxes. Just one receipt, just one line item come tax time, and you can make hundreds of donations throughout the year without having to keep the receipts somewhere you’ll lose.

Are there disadvantages? A few. First, when you make a direct donation to a charity you can often do it with a credit card. You earn rewards for that donation but the charity pays for the credit card fees.

Next, you always need approval from the fund in order to make the donation, which adds to the processing time. When you donate with a credit card, it goes to the charity pretty quickly. When you “recommend a grant,” it needs to be approved and that will add a day or two to the process. I’ve yet to make a recommendation that was denied.

Lastly, the investment options can lose money. You can donate $500 into your fund and only have $350 when you want to recommend a grant. You might also have $650 in there. Either way, the investments can go up or down and you might not have as much in there as you expect.

Have you considered a charitable gift fund?

(Credit: Mindful One)

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One Response to “Why We Use a Charitable Gift Fund”

  1. Michael says:

    We use one, primarily to make it easy to donate appreciated mutual fund shares as opposed to cash money. We can then re-buy at a higher cost basis, minimizing future taxes.

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