As investors have started to increase their charitable giving following the financial crisis, Fidelity Investment’s Charitable Gift Fund has grown.
Donor-advised funds have gained in popularity as more private foundations have seen the benefits of the funds over the complexities of running their own foundation. The reason: cost efficiency, simplicity, flexibility, eliminating administrative burdens and larger tax deductions.
“When you are part of the Fidelity Charitable Gift Fund, we are doing all of the oversight and administering of grants for you and therefore you don’t have the fiduciary responsibility for administering all of that,” said Sarah Libbey, president of the Fidelity Charitable Gift Fund. “Foundations have also realized that if they can save the costs of running a private foundation than they can get more money into the hands of the non-profits that really need it.”
The downside is that some donors want more control over their granting mission. Donor-advised funds only allow individuals to recommend which charities should receive their contributions, though the fund usually follows the donor’s requests.
If an individual has $250,000 or more they can also have their own investment advisor manage the money in their account.
Another added bonus of a donor-advised fund is that once a donor has a fund, they can do most of their transactions online, choosing from 15 investment pools in Fidelity’s portfolio and checking their account balances.
Since March 9, 2009, when the Standard & Poor’s 500 Composite Index, hit its low point, Fidelity says that donors have contributed nearly $1.2 billion to the Fidelity Charitable Gift Fund, up nearly 20% from a year earlier. Year-to-date contributions to the Gift Fund are up 57% to $118.6 million.
Fidelity is the largest donor-advised fund with $4.7 billion in assets. Charles Schwab [SCHW] and Vanguard Group offer similar products.
Libbey said that part of the draw of Fidelity’s Charitable Gift Fund is its simplicity: any individual can set up a giving account with a $5,000 minimum and the initial contribution can be taken as a charitable tax deduction. There is no minimum level required for adding to a donor-advised fund and the minimum size grant is $50.
She said the misconception is that the Fidelity Charitable Gift Fund is one fund and works like an endowment would work at a private foundation. The reality is an individual has the ability to recommend how they want the account balance managed. With 15 investment pools to choose from, including money market funds and international stocks, there are many options. And the investor has an unlimited time horizon to make grants to non-profit organizations.
Last year over 45% of the Fidelity Charitable Gift Fund’s incoming contributions were in the form of appreciated securities, Libbey said, meaning the donor was able to not only make contributions and get the tax deduction, but they were also able to avoid the capital gains tax liability because they made the donation in-kind. “The individual is not selling the stocks and getting cash and then giving the donation,” she said. “They are giving the stock to us to liquidate and we add it to their account balance.”
In the past three years, Libbey said, there’s been double digit growth in donor-advised funds as more tax experts, estate planners, and registered investment advisors have learned about these funds.
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