By Nancy Opiela
To facilitate charitable giving in your family, consider establishing a donor-advised fund, often referred to as a DAF. A donor-advised fund is an account you establish at a sponsoring organization, which is a public charity. Donors may be eligible for an immediate tax deduction for amounts they contribute to the sponsoring organization, while enjoying the freedom to recommend grants to eligible charities on their own timetable.
For example, Fidelity Charitable, an independent public charity, created in 1991, offers a donor-advised fund program. The Fidelity Charitable DAF is called a Giving Account. To establish a Giving Account, you make an initial irrevocable contribution to Fidelity Charitable of cash, securities, or other complex assets. You and your family can then recommend grants to qualified charities when it will benefit them the most. In the meantime, the assets you contributed are invested, professionally managed, and have the opportunity to grow tax free. You can even name successor donors who will assume all Giving Account privileges after your death, recommend charitable organizations to receive the Giving Account assets, or choose a combination of the two.
A DAF offers a convenient way to pass your charitable giving values on to your children or grandchildren. Johnne Syverson suggests giving young children the power to recommend charities to receive grants of $100 to $500 from the family's DAF account. "The kids can recommend a charity that they care about based on knowledge that they've gained on their own," he says. "It's essential to involve children in the process. Simply seeing Mom and Dad sitting down and writing checks during the holiday season doesn't teach core philanthropic values."
Families with substantial financial resources sometimes establish a private family foundation. The administrative responsibilities in maintaining a private foundation are more complex than those of a donor-advised fund. However, they also present a different kind of opportunity to involve teens and young adults, allowing you and your family more control over charitable grant-making.
You might consider forming a junior board of family members, ages 12 to 21, as an ad hoc charitable committee, with the authority to disburse a subset of the foundation's total grants each year, says Philip Flynn III, of Philanthropic Focus, a Vero Beach, Fla., company specializing in private foundation governance and legacy planning.
"It's not the size of the gift that is important, but rather that the kids have control and responsibility," Flynn says. "In addition to feeling part of the philanthropy, kids learn valuable skills, from how to read an annual report to how to set disbursement policies and benchmarks."
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