Americans far and away lead the world in charitable giving.  For most of us this is through direct gifts to qualified charities.

Those who have substantial funds that they wish to pass on to charities also have two valuable vehicles to consider.  A private foundation allows an individual to make gifts to their own foundation, that can then give gifts to other 501(c)(3) qualified charities or with careful planning to individuals for scholarships, medical treatments, etc.  Running a private foundation, however, is not without its complications and costs.  It requires the creation of a non-profit corporation and qualification under the IRS Section 501(c)(3) through a process that can take up to a year.  When its up and running, the private foundation is run by a Board of Directors and must donate at least 5% of its corpus in any given year.

An alternative to forming a private foundation is a device that has gained substantial popularity in recent years, a “donor-advised fund”.  This device allows charitable giving to be funneled through an already created public charity that is a fully qualified 501(c)(3).  Once established, the only annual paperwork is listing a single charitable contribution on a personal tax return.  A gift to the public charity is “complete” when made but the charity agrees to take “advice” where the money should go and thus the ultimate gifts go to charities chosen by the Grantor.  The Grantor also often can provide advice on how funds are invested especially if the gift is substantial.  Public charities that handle donor-advised funds typically have an administrative cost of 2 1/2 to 5% to run the foundation.  This cost is far less than running your own private foundation.

A lot more information on both of these charitable devices is available for those who are interested.

– Thomas M. Wells

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