Do you ever find yourself enamored with the idea of running your own private family office, but lack the $100 million or so it takes to make it economically feasible? Are you charitably inclined and wish to establish a permanent legacy of giving for yourself (and perhaps your children)?

Then I have some good news for you – an ideal vehicle exists to deliver these benefits to you at a tiny fraction of the price of a family office, in the form of a Donor Advised Fund. A Donor Advised Fund is an irrevocable charitable gift of cash or securities, established by a donor (an individual, family or business), from which you have the opportunity to recommend disbursements for charitable causes.

The donor receives an immediate tax deduction for the full amount of the gift and continues to have the opportunity to be involved in its charitable use. While technically any recommendations regarding distributions from the fund are “advisory only”, in actuality they are rarely challenged. For often as little as $5,000, it affords many of the advantages of a private foundation with greater tax benefits and none of the administrative and tax filing headaches.

Some other benefits of Donor Advised Funds include:

• Simplicity – from a single Donor Adviser Fund, you can recommend grants to many different nonprofit organizations without having to make separate contributions to each organization. Responsibility for the administrative work associated with charitable giving is transferred to the fund administrator, and your anonymity can be protected if desired.
• Professional Investment Management – A Donor Advised Fund is typically pooled into a large investment account with many other individual funds. Through the pooling of assets, your account can be professionally managed in a diversified portfolio at a very low cost.
• Avoiding Capital Gains Tax – Donors who contribute long-term appreciated securities can potentially get a double federal tax benefit. Gifts of appreciated securities are deductible at their full market value if they were owned longer than twelve months. The capital gains tax on an asset’s appreciation is therefore avoided. (As every individual’s tax situation is unique, you should consult with you tax advisor with respect to maximizing any tax benefits.)
• Family Involvement / Legacy – Your children can be encouraged to continue your tradition of philanthropy by appointing them as successor advisors. Upon the death of the last surviving advisor, the fund can continue as a permanent named endowment meeting your charitable purposes for generations to come. In this way, you can actually build a permanent legacy and have gifts made in the name of your fund in perpetuity.

There are some limitations on the types of grants that can be made from a Donor Advised Fund. IRS rules stipulate that distributions from the Fund may not be used to fulfill any preexisting pledge or for any personal benefit for donor(s), fund advisor(s), or any related party, including personal grants, loans, compensation, reimbursements, and other similar payments.

In addition, distributions may not be made to private foundations or individuals or used for political contributions, lobbying or to support political campaigns. But all in all, when compared to the other options available, opening a Donor Advised Fund can be a compelling choice for low cost, tax-efficient and long-term charitable giving.
Securities