While many investors give money to charity, until recently only the very rich could boast of having their own charitable foundation. But that's changing. An option that has gained popularity in the past few years is donor-advised funds, which let investors donate stocks or funds to charities for a minimal setup cost, plus a sweet tax break. "Anybody really committed to philanthropy, who's making a decent living, can now have their own philanthropic legacy, in a way that previously only the very wealthy could," says Timothy Freundlich, director of strategic development for Calvert Social Investment Foundation. "Suddenly a really broad slice of the population can be a high-end, sophisticated philanthropist." Calvert rolled out its program in October, joining a number of major fund families. Donor-advised funds work like this: First, investors decide to donate money to a foundation affiliated with a fund family. Minimums range from as low as $5,000 at Calvert to $10,000 at Fidelity and, at the higher end, $25,000 at Vanguard (which says it offers lower expenses in exchange for requiring bigger accounts). Donors get a tax deduction on the sum of the gift -- and if the donation was made with an appreciated security, they're also allowed to take a pass on capital gains taxes. For example, say you bought stock in Microsoft ( MSFT) 10 years ago for $1,000, an investment that has grown to $10,000. Then you give the full sum to a donor-advised account. When you file your income taxes, you'll reduce the amount of income you're taxed on by $10,000. Because the donation consisted of appreciated stock, you'll also duck paying capital gains taxes on $9,000. In other words, you'll get to take a deduction on the $10,000 current market value of the donation, though your cost basis was only $1,000.
"Two-thirds of our contributions to the program are in the form of appreciated stock," says Ben Pierce, executive director of Vanguard's charitable endowment program. "It's absolutely the way for people to give because of the avoidance of capital gains." Deirdre Nector, senior vice president of the Fidelity Charitable Gift Fund, says most of the fund's contributions arrive in the last few months of the year, as donors try to meet the year-end deadline for tax purposes.