More small private foundations are dissolving and moving their assets into low-cost, flexible donor-advised funds, sometimes called charitable funds, run by mutual fund companies, The Wall Street Journal reports.


The shareholder can determine which charity, or charities, the fund benefits and take an immediate tax deduction, while their assets continue to grow tax free.

Though currently only a $27.7 billion industry, compared to the $300 billion that Americans donate annually to charities, donor-advised funds have increased four times from the $7.5 billion they had under management eight years ago.

And with the drastic market downturn last year, it makes more sense to philanthropists to move from foundations that require minimum distributions of 5% each year, regardless of the market’s direction, to donor-advised funds, which have no such rule.

In addition, the annual fees in a donor-advised fund can run only a few hundred dollars a year, versus the thousands a private foundation costs due to the time and the staff involved in running it. Furthermore, the identities of shareholders in donor-advised funds remain private, whereas they often become public in foundations.

The only drawback, for some, is the sense that they lose the cachet of having a private family foundation that may be conducting esoteric research or catering to a specific cause that an outside charity may not.

Still, with 64,000 private foundations in the U.S., approximately a third of them with assets of $1 million or less, the market to expand donor-advised funds certainly exists. Last year, Fidelity increased the number of private foundations that moved to its donor-advised funds by 43%, and Charles Schwab doubled the number.

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