By Michael Roney

Donor-advised funds have significantly outpaced traditional nonprofits and foundations to become philanthropy’s fastest-growing vehicle for giving.* A case in point is Schwab Charitable™, which has more than $5 billion in assets under management.

In the past year, Schwab Charitable has doubled its new accounts and reported 55% growth in assets under management.

Why the surge in popularity? There’s no doubt that donors increasingly recognize that these charitable accounts offer advantages in convenience, giving power and tax benefits. “Donor-advised funds are simple, efficient and tax-smart for people of all income and wealth levels,” says Schwab Charitable President Kim Laughton. “Our charitable account sizes range from $5,000 to more than $500 million.”

Why Choose a Donor-Advised Fund?

Compared to a private foundation, the difference in administration is huge. “Private foundations can be two or three times as expensive to maintain and operate,” Laughton points out. “They require more administration, including up-front legal setup and an annual tax filing; they have lower deductibility limits; and they value some donations at cost basis, while donor-advised funds can use fair market value.”

Contributions to donor-advised funds, which are registered as public charities, generate tax benefits immediately. “Donations of appreciated assets can be particularly valuable,” notes Laughton. “You can enjoy a current-year marketvalue tax deduction and avoid payment of capital gains taxes on their sale, which allows you to give more to the charity.” The higher deductibility limits of donor-advised funds make them well suited for donating complex assets—for example, privately traded stocks and partnerships (such as shares in a company), as well as real estate, collectibles or artwork. Grants can be recommended for as little as $50 to any public charity (501(c)(3) organization) at any time.

Simpler and More Convenient

Donor-advised fund accounts are simple for both donors and charities. “As a donor, you see your charitable account along with all of the other investment or bank accounts that you might manage online. The management and processing— all of the grants, contributions and tax forms—are handled by the system, and you can access reports at any time,” Laughton explains. “Charities benefit as well: They understand that clients who have donor-advised funds tend to be some of their better prospects for future giving; and donoradvised funds can easily process appreciated and complex assets, which can be a burden for a charity. Additionally, some foundations have made the decision in the past few years to convert to donor-advised funds after realizing that the time, expense and compliance risks associated with their traditional organizational model were distracting from their charitable goals.”

“Donor-advised funds are simple, efficient and tax-smart charitable accounts for people of all income and wealth levels.” Kim Laughton, Schwab Charitable President

Laughton characterizes legacy giving with donor-advised funds as “wonderfully simple.” When completing the donor-advised fund application, you can name family members, friends or advisors to become successors and managers of your account or you can distribute the account to your favorite charities.

“In 2011, we launched the Charitable Legacy Program, which allows donors to name charities to receive donations not only at the time of their death, but for a period of years after their death,” she says. “If you’ve got quite a bit of money and you want to support a charity over a long period of time, you can explicitly request that and easily change those instructions at any time during your life.”

A Strategic Win-Win

With their flexibility, high value and convenience, donor-advised funds can offer a win-win for donors and charities alike. That helps explain why Schwab Charitable has facilitated over $3.6 billion in grants to charities on behalf of its donors.

There hasn’t really been a better time for charitable giving. As Laughton points out, “The robust markets and recent increase in the highest income and capital gains tax rates are making the value of the charitable deduction even higher, allowing people enhanced rewards for strategically managing their charitable assets.”

Building Your Giving Strategy

Laughton suggests building a giving strategy in four steps:
  • Understand your motivations and values. Begin by considering your life experiences and what’s important to you. What has touched you? What experiences have you had? To what charities do you enjoy giving? What challenges do you see in your community or in the world where you’d like to make a difference?
  • Assess your financial resources. How much can you afford to give? Do you have any assets that perhaps can be used for charity, such as appreciated stock on which you really don’t want to be paying capital gains? “Many people regularly set aside a certain amount of money for retirement or education goals each month,” Laughton says. “You can think about charitable giving in the same way.”
  • Choose your level of involvement. “Some people want to roll up their sleeves and spend a lot of time with the charities they support and may want to get their families involved,” says Laughton. “Others may not have the time or the interest to do that and just want to give away money as efficiently as possible. Either way, a donor-advised fund can be very supportive.”
  • Pick your recommended charities. Once you’ve set up the donor-advised fund, you can identify your preferred charities and then monitor grants at whatever frequency you wish. “It’s sort of an iterative process, because you may know exactly where you want to give, or as time goes on you may have new causes and charities to add to your list,” says Laughton.


*National Philanthropic Trust 2012 Donor-Advised Fund Report

Since inception, Schwab Charitable, a leading national donor-advised fund, has given $3.6 billion dollars to charitable organizations. For more information about how a Schwab Charitable account can be part of your financial plan, please call 800-746-6216, or visit


Tax deductibility limits are different by asset type. Contributions that exceed Adjusted Gross Income (AGI) limitations may be carried forward and deducted for five years. The donor must obtain a qualified appraisal and file IRS Form 8283 for all gifts other than cash and publicly traded securities. Your ability to claim itemized deductions may be subject to further limitations depending upon your specific tax situation. Please consult your tax advisor.
