This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Rich Families: Look at Donor-Advised Funds

BERKELEY HEIGHTS, N.J. ( TheStreet) -- Donor-advised funds are a great funding vehicle for charitably inclined wealthy families.

Using such a vehicle can lead to a more thoughtful and disciplined approach to giving. The donor gets an immediate tax deduction while their contribution is invested allowing it to grow, with the current year tax deduction subject to the percent of adjusted gross income limits. Since DAFs are considered public charities, the limitation is 50% of AGI for cash donations. (Lower limits apply to noncash contributions.)

For example, an person with an AGI of $1 million could contribute $500,000 in cash into a DAF and take an immediate tax deduction. Even though the donor has made an irrevocable contribution, he or she still gets to select from the DAF's available investment options and decide when and how much to grant to eligible charities.

So how does a DAF stack up against running a private foundation? From a tax perspective, DAFs allow for a potentially higher upfront tax deduction based on AGI limitation rules. DAFs also require significantly less time and administration.

A private foundation does offer more control, particularly around investment and grant making, but the price for the extra control is the initial set-up cost plus ongoing expenses such as legal and accounting fees. A private foundation requires a separate legal entity be created, and the entity will need to apply for tax-exempt status with the IRS. Ongoing rules require minimum annual charitable giving levels, and there are percent limitations on annual administrative expenses. Private foundations are also required to file an annual informational tax return known as a 990 with the IRS.

>>Donate Smartly With Donor Advised Funds

The Council on Foundations has an excellent FAQ on starting a foundation and the various considerations involved. Based on the COF examples it takes $10 million before a private foundation has enough funds to have a paid staff of a part-time CEO and part-time administrative assistant, while the ongoing expense of a DAF will typically include an administration fee plus the expense associated with underlying investments.

Fidelity's DAF, the Charitable Giving Account for individuals, has a blended administrative fee of roughly 0.45% on the first $1 million. The underlying investment expense for the balanced portfolio offered is 0.69%, and it allows grants to any IRS-qualified public charity.

Wealthy families considering setting up a private foundation should see if contributing to a DAF makes more sense from a time and cost perspective. The family could still hold informal meetings and discuss how much and to which charities they wanted to donate -- providing the same benefits as a private family foundation without all the administrative costs and strict rules.

>To submit a news tip, email:


Follow TheStreet on Twitter and become a fan on Facebook.
Michael Maye is the founder and president of MJM Financial Advisors (, a registered investment advisory firm in Berkeley Heights, N.J. He is a member of the National Association of Personal Financial Advisors (NAPFA) and has been a speaker covering tax topics at NAPFA's national and regional conferences. Maye has also been a frequent contributor to the Star Ledger of New Jersey's "Biz Brain" and "Get With the Plan" articles. In addition to NAPFA, he is a member of Financial Planning Association, American Institute of Certified Public Accountants, New Jersey State Society of CPAs and the Estate Planning Council of Northern New Jersey.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $95.18 1.64%
FB $117.44 -0.95%
GOOG $692.33 -0.84%
TSLA $232.32 -3.92%
YHOO $36.02 -1.40%


Chart of I:DJI
DOW 17,750.91 -140.25 -0.78%
S&P 500 2,063.37 -18.06 -0.87%
NASDAQ 4,763.2240 -54.37 -1.13%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs