Funds Can Make Giving to Charity an Easy Gesture
Searching for a way to do good for others while doing well by yourself? You might consider a donor-advised fund. Offered by brokerages such as Fidelity Investments, Charles Schwab, and T. Rowe Price, the accounts are akin to mutual funds for charitable donations. Sock the minimum $10,000 into Fidelity's Charitable Gift Fund and earn a federal income tax deduction for the entire gift, because the fund is a nonprofit. Then, at your own pace, pinpoint certain charities and decide how much to give each one. Tell Fidelity who the lucky groups are; the fund dispatches a check to the charity and alerts you. Or leave the money in your account to earn more income for future donations.
Community foundations have offered donor-advised funds for decades. But big brokerages began peddling the products in the 1990s--just in time to ride the coattails of the new-economy boom. When Fidelity's Charitable Gift Fund debuted in 1992, it had 478 accounts and $27.1 million in assets. By 1999, the fund was the nation's fifth-largest charity, boasting over 20,000 donors, $2 billion in assets, and $457 million in annual gifts.
But charity experts caution that the funds are not an automatic boon for philanthropy. Some say the funds sour the charitable impulse because donors may focus too heavily on tax benefits or give thoughtlessly. "Use of these donor-advised funds does not excuse the need to check out charities before a gift is made," says Bennett Weiner, a vice president at the Council of Better Business Bureaus, who suggests vetting a charity against the CBBB's reviews.
Many returns. Though fees and gift minimums vary, most funds take similar approaches. Donors to the Vanguard Charitable Endowment Program hand over an irrevocable gift of at least $25,000 in cash or securities; Fidelity and Schwab require $10,000 initially. Giving stocks and other securities that have appreciated in value doubles the tax benefit: Donors dodge capital-gains tax and can take a deduction for the shares' full market value.
At about seven tenths of a percent of your account's annual assets, Vanguard's fees are among the cheapest. Eaton Vance's U.S. Charitable Gift Trust can charge up to 2.95 percent--nearly 1 percent is a broker's commission. Most funds offer both high-risk and conservative investments, with varied returns. The Gift Preservation Pool of the Schwab Fund for Charitable Giving returned nearly 7 percent last year, while the Growth Index Pool was off by 9 percent.
Regardless of the investment strategy, donor-advised gifts often provide charities with welcome windfalls. On January 2, a check for $100,000 arrived for Sister Marilyn Lacey, director of immigration, refugee, and employment services at Catholic Charities of Santa Clara County in California. The anonymous donor, a high-tech magnate, issued the check from a fund at the Community Foundation Silicon Valley. "I go about the world now expecting that anyone I meet may be this mystery donor," says Lacey, who plans to use the money resettling Sudanese refugees.
Donors seeking guidance for their giving may prefer community foundations to the national financial firms. While such funds can grant gifts outside their turf, "We have an intimate knowledge of our community and its nonprofits," says Minneapolis Foundation CEO Emmett Carson. Some nonprofits also offer funds of their own. The Humane Society of the United States' new donor-advised fund shuns firms that conduct animal testing, and it requires donors to direct at least 10 percent of their gifts to the society.
Sold on donor-advised funds but can't meet the minimums? Most funds allow account contributions from multiple donors, so you can pool resources with family members. Or check whether your firm sponsors a gift-matching program. But the hefty minimums shouldn't deter you entirely from giving. Says the CBBB's Weiner: "Charities need your help in both small and large amounts."
Where To Go
Donor-advised funds simplify donating to charity; these sites can help you give smarter:
www.bbb.org Check whether charities measure up to Better Business Bureau standards of efficiency. Groups that spend more than 35 percent of gifts on fundraising miss the cut.
www.guidestar.org Scour profiles of over 650,000 nonprofits for details on their missions and finances. Search for charities by subject area or location.
This story appears in the February 12, 2001 print edition of U.S. News & World Report.
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