Mitt Romney has recently gotten a lot of press about the extent of his charitable giving—and the recipients of that giving. While his donations have been both praised and panned depending on the source, the fact is that whatever you think of Romney’s politics, there is a lot to be learned from how he and his wife have chosen to manage their charitable giving.
One of the ways the Romneys have chosen to manage their charitable giving is by giving to donor-advised funds. A donor-advised fund is a vehicle for giving to charity which is administered not by an individual, but by a public charity which manages donations on behalf of the individual donors. Business Week describes a donor-advised fund as “an alternative to giving directly to a charity or setting up a foundation. It enables benefactors to give assets, including appreciated stock, to a central source and get an immediate tax deduction. Donors also retain advisory rights over their accounts. They can choose investments and direct distributions to public charities over many years.”
Donor-advised funds are an attractive option for wealthy families or individuals who want to make the most of their charitable donation—both for their own tax purposes and for the benefit of the charities they wish to support. However, would-be donors would do well to remember that there are some drawbacks.
The primary drawback of a donor-advised fund as opposed to a private foundation is that donors have less control over where their contributions are sent. The Wall Street Journal writes that while “it’s rare for a fund to refuse to make a donation as desired by an account holder… they don’t allow donors to provide direct support for individuals or for groups that don’t qualify as charitable organizations.”
Another potential drawback to a donor-advised fund is that any donations given to the fund are irrevocable. Once the donation has been given there is no taking it back if circumstances change, and there is no redistributing it if the money is not allocated as the donor would prefer.
If you are considering making your charitable contributions through a donor-advised fund this year I recommend discussing the decision with a trusted financial advisor first. It is especially important to talk to an attorney or advisor if you would like to make contributions to a donor-advised fund through your will or trust upon your death. Please contact my office for more information about charitable giving. I can help your family decide which of the many options available will help you achieve your tax saving, asset protection, and philanthropic goals.