We all know the research that tells us it feels good to give. Even clicking a donation link and making an online gift sets off a rush of endorphins that provide a sense of wellbeing. (Try it, it works!) That’s great news for charities who depend on the generosity of the community to support their important work. Karna Peters, a board member of Canvas Health and Associate General Counsel for Supply Chain at 3M, remembers the day she decided to look into donor-advised funds. Her child’s school was feeling the hurt from recent budget cuts, and parents on the board were strategizing ways to fill the gap with donations. One of the parents told her about how he set up a donor-advised fund for charitable giving. He sang the praises of its convenience and tax benefits.
She decided to look into setting one up for herself, but had her doubts. Naturally, the benefits sounded great, but what if the initial outlay was too high?
Karna was happily surprised to learn that her investment company charged no administrative fees to set up a donor-advised fund, and that the minimum contribution for Karna to open her account was only $5,000.” The money was then invested and generated interest. “Schwab’s process for setting up a donor-advised account is simple and didn’t require as much money as I thought it would,” says Peters. (Peters cautions that she’s not proving legal or tax advice here; simply sharing her personal experience.)
As luck would have it, the year she started the Karna Johnson Peters Family Charitable Fund was a windfall year for Peters. She had extra income from winding down her law firm to begin work for 3M. Starting the fund reduced her taxes for that year that she had the extra income. “Once the fund is set up, it offers benefits,” says Peters. “In essence, you don’t have to pay capital gains tax as the fund appreciates, and your charity gets the full value of any donation.” The account also has the potential to create tax advantages by aggregating contributions to the donor-advised fund into alternating years.
Depending on who manages your account, having a donor-advised fund is a little like having a personal assistant who keeps track of your giving and sends correspondence in the name of you or your fund. “The online process is so simple,” says Peters. “It gives you the option of donating again to your charity and allows you to automatically populate the form or make a change to what you gave previously.”
Giving this way allows her to focus on the organizations she chooses to support and what impact she’d like to have. Throughout the year, she prioritizes her charitable giving. “My giving is more intentional now,” says Peters. “I typically make a donation to the fund at year-end and then allocate the money throughout the following year.”
Each time you give, this investment company sends a letter to the charity to notify them of the donation and how (or if) you’d like to be recognized.
For Peters, there have been other benefits, as well. “Because the money is already there, it makes you feel good to make the donation,” says Peters. “You feel as though you have a pot of money from which to make donations.”
Peters also has formed a stronger relationship with her favorite charities by not only giving more than she did before creating the fund, but also learning more about how the donations are used. She feels an increased level of engagement and commitment.
“It’s been an even more positive experience,” says Peters. “You understand the good [these organizations are] doing. It’s allowed me to talk with them about what they’re doing with my contributions.”
We encourage you to talk with your financial advisor about donor-advised fund and making the most out of your charitable gifts. Learn more about philanthropic giving to Canvas Health.