Reflections on record-keeping: Is a donor-advised fund right for you?

Gearing up for tax time and looking everywhere for receipts for your charitable donations? This might be the year to look in the mirror and get real about streamlining your charitable giving record keeping. And you can do that through a donor-advised fund. 

What's a donor-advised fund? A donor-advised fund is a philanthropic planning tool offered by financial institutions, community foundations and other nonprofits, including an increasing number of universities and endowments.

And they are popular! Gifts to charities from donor-advised funds grew 27 percent in 2014 to reach $12.5 billion. At the same time, total assets in these accounts have hit an all-time high, topping more than $70.7 billion. 

Why are donor-advised funds so popular? A donor-advised fund is a tax-effective, flexible tool to organize giving to charities. The administrative convenience of a donor-advised fund means the tool is becoming a popular alternative to private foundations.

Here's how it works. You set up a donor-advised fund with a community foundation or a financial institution. Then, you transfer cash or appreciated stock into it. Because the donor-advised fund qualifies under Internal Revenue Code Section 501(c)(3), the tax deductible transfer is completed at that point. So you've got the receipt for your tax return next year. Then, over the course of the year--and beyond--you can do your charitable giving directly from the money your donor-advised fund, making gifts to charities of your choice. The donor-advised fund administrator tracks where you give and how much.

And, best of all, donor-advised funds are built to accommodate all levels of givers, whether you give hundreds of dollars to charity each year, or thousands. After all, every gift to a cause you love makes a big difference in the lives of others, and in your own life, too.

MoneyLaura McKnight