Donor-Advised Funds Help Donors Maintain Giving in Tough Economy

Donor-advised funds are providing a way for some individual donors to maintain their contribution level even as the slowing economy and volatile markets cause many donors to reduce their giving, Bloomberg.com reports.

An alternative to giving directly to charity or creating a private foundation, donor-advised funds allow high-net-worth individuals to give assets to a third party, such as a local community foundation or federated giving organization, and receive an immediate tax deduction. The donated assets, considered an irrevocable gift, are put in an account and generally invested in mutual or money-market funds. Grants made from the fund are recommended by the donor and can be distributed at any time.

Donor-advised funds offered by financial service companies such as Charles Schwab and T. Rowe Price may be more flexible than writing a check to a charity directly, as donors can take the tax deduction immediately and choose the charities they want to give to at a later date. Indeed, the popularity of the donor-advised funds has continued to grow, despite this year's economic turmoil. For example, the number of grants awarded through the end of the third quarter by the Fidelity Charitable Gift Fund, the largest administrator of donor-advised funds in the nation, increased 12 percent year over year, totaling some $744 million, even though contributions to the fund were down 35 percent over the same period.

Claire Gaudiani, a professor at New York University's Heyman Center for Philanthropy and Fundraising, said she expects donor-advised funds will help cushion the impact of the financial crisis on giving. "Donor-advised funds require a committed donor who is going to make sure those funds are meeting needs and not missing needs," she said. "You can't just park the money there and be lazy about it."

Alexis Leondis. "Donor-Advised Funds Offer One-Stop Route to Support Charities." Bloomberg.com 11/04/2008.