By Stephen Hassell, CFP®
I wanted to make a quick video to introduce you to a donor-advised fund, which may be a useful tool for you to use in order to make your charitable gifting more strategic, more consistent, and easier to manage over time.
So this video is really made for individuals who are already engaged in charitable gifting but are just simply writing checks, using credit cards, things like that. Or maybe individuals who are interested in getting kicked off with charitable giving but don't necessarily know where they want to send the money to yet, but they want to build it into their ongoing cash flow.
So the donor-advised fund we're going to look at today is one through Fidelity, called Fidelity Charitable. You can access their website at fidelitycharitable.org. This is an account you can set up personally. Or if you're working with an advisor who's got a relationship with Fidelity Charitable, they've got the ability to open the accounts as well. We do manage some Fidelity Charitable accounts for our clients.
But the easiest way to go through this and point out some of the features and benefits are really through the demo. So if you go to their website, you can actually select “Try Our Demo,” and that'll jump you in here to a sample account.
And so once you establish an account, you'll name it whatever you want to call it. ”Demo Account Family Charitable” is what this one's called. And you'll see any grant activities.
So a grant is once money leaves Fidelity Charitable and goes to the charity, the charity of your choice. The neat thing about a donor-advised fund is whenever money leaves, say, your banking account and goes into your Fidelity Charitable account, that is considered to be the completed gift, meaning from a tax perspective, that is the gift.
The money can simply sit in this charitable account the rest of your life, in which case, you know, it didn't really help anyone out, but it can sit inside this account. It can even be invested over time, and you can grant it out to different charities, different 501(c)(3) organizations at some point in the future.
So, if you really want to just build this in, the discipline of giving, into your monthly cash flow but don't really know where it is you want to give the money yet, this is a great tool to do so.
The other benefit is, given all of your money is flowing into Fidelity Charitable and then you're making grants to different charities from within this platform, you don't need to track all these different receipts. And so, when it's all said and done, if I look back, for example, this is just some sample history in this demo account—but you're able to see everywhere that you've given gifts to, basically. You can download this, analyze this, or whatever.
I don't need to go and keep receipts for all these different organizations. All I simply need to do is basically pass along a copy of my statement for Fidelity Charitable showing how much I've put in for a given tax year and provide that to the tax professional. And they take that into account.
So you can set up contributions just with a bank account transfer, wire transfer. You can also do “Other.” So a common way to do gifting is if you have a fairly significant non-retirement investment portfolio. And if that investment portfolio has gains in some of the investments, rather than gifting cash, you can actually gift in kind X number of shares of whatever appreciated investment is there.
The benefit there is that you end up sheltering the gain from taxation at your rate, and you transfer that tax burden over to the 501(c)(3) organization or, in this case, to Fidelity Charitable, in which case there is no tax.
So you could, for example, if you were going to give $10,000, but 5,000 of that was gain, and 5,000 of that was your original purchase, you could shift that entire $10,000 over to Fidelity Charitable and have $10,000 to give but have no tax ramifications at all.
The other cool part is if you know that anything that's going into the account is something you know you want to gift out, you probably just want to keep it in cash or money market. But if you are in a position where you're actually accumulating funds inside of your Fidelity Charitable and not gifting it all out at once, you can actually come in here and invest all or a certain portion of the money inside of your charitable account in different asset allocations.
If you have any exposure or experience with 401(k) platforms, it works pretty similar to that in terms of available options. Some are risk-based options. Or you can go build your own portfolio using some of the options here.
Any expense ratios range from extremely low to moderate, nothing very expensive in this platform.
And in terms of costs, there is no minimum to get started. The minimum grant size is going to be $50 to each charity, $50 or more.
And then there is an annual administrative fee. This is something that Fidelity Charitable collects, but this is going to be 0.60% or $100, whatever's greater. And so they actually give you examples here on the website at different price points.
So feel free to go on over to fidelitycharitable.org and explore some of their resources. They've even got a quiz to determine whether it's right for you. Personally, I've used it for many years, and it really helps streamline the gifting process.
Not only does it allow you to gift appreciated shares and save money on taxes that way, but it also allows you to build more discipline into your monthly giving, even if you're not quite sure where you want to send those donations ultimately,
And the mobile app—we're looking at the website version of it now—but there is a mobile app that's very easy to use. You can grant on the spot, and Fidelity does all the processing. They send out the checks.
And another benefit too, you can gift anonymously. If there's some gifting you want to do and you don't really want to be recognized for it personally, you can gift anonymously through this platform.
So consider taking a closer look if it is something that's of interest. If you're a current client of our firm, ask us about it. We'd be more than happy to dive a little bit deeper and share with you how we can support you in your charitable giving efforts going forward.
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