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Donor Advised Funds
A charitable giving vehicle which
enables a donor to make an outright, irrevocable
and anonymous cash contribution through a simple letter of
agreement with one non-profit, which may then
give the money to another non-profit, which is the donor's real
intended recipient.
First,
the donor
contributes the money to a non-profit group that is a tax-exempt
501(c)(3) organization and signs a letter of agreement with the
group that sets up the fund that holds the money.
Second, the
group agrees to act as a steward of the contributed money (the
fund), and technically may do anything with it they please, but the
letter of agreement recognizes that the donor may recommend that the
money not be kept, but transferred to another specific 501(c)(3)
organization, which, although not stated in the agreement, but is
understood by both parties, is the real intended recipient.
Third, when the
real intended recipient gets the money, it appears to be a gift from
the steward 501(c)(3) group, and the original donor may choose to be
identified or to remain anonymous.
According to law, as
long as the donor's recommendations are
non-binding, the donor will receive an income tax deduction for the
monies contributed and remain anonymous. In
actual practice, steward organizations almost always give the money
to the intended recipient.
The Donor Advised
Fund may be temporary or permanent. Permanent funds may include
securities which generate dividends, which must be distributed each
year, making the permanent Donor Advised Fund much like a small
foundation itself.
BENEFITS
● The donor may stay actively involved
in a permanent Donor Advised Fund, recommending different
charities to receive distributions from the Fund each year.
● The donor enjoys administrative
convenience because the steward non-profit
handles all the paperwork and legal issues of the Fund.
● Giving to other charities may be done
anonymously.
● Donor receives an immediate income tax
deduction for the full value of the gift.
● Bypasses capital gains taxes on
long-term appreciated securities.
● A Fund can be established
quickly and easily, with a minimum of paperwork.
● The final
non-profit recipient of the money can prove that it received the
donation from another non-profit organization, even though an
anonymous individual was the real originator of the donation.
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