Charitable Gift Funds

What is a Charitable Gift Fund (CGF)?
A CGF, also known as a Donor-Advised Fund, is basically a holding tank for you to finance charitable donations.  Instead of making your donation directly to a charity, you first put money into your CGF, and then recommend grants from the fund to your charity of choice.  It’s called “recommend” but in reality it’s directing the money to any US-registered 501(c)(3) nonprofit.  You take a tax deduction at the time you fund the CGF, not when you recommend the followup grants.

Why would I want to donate indirectly through a CGF?

  1. Simplicity. If you track your charitable giving for tax purposes, it’s a headache to keep and organize all of the receipts.  I was audited in 2005, and witnessed a friend audited in 2008, both times to verify our charitable giving.  Fortunately we had all of our receipts, but it takes work to respond to an IRS audit.  I believe you are less likely to be audited if you donate only to a single organization (your CGF), as it’s simpler to track the total amount and less likely you’ll make accounting mistakes.
  2. Privacy. It’s unfortunate, but many charities share mailing lists.  When you donate, your name and mailing address become very valuable and are sold to other organizations.  This results in a flood of junk mail from worthy-sounding organizations with urgent cries for help.  It can be overwhelming to sift through all of these requests, and your reward for responding is yet even more junk mail.  I prefer to search for charitable organizations on my own, rather than respond to those who send the most advertising/fundraising mail.  When you donate indirectly through a CGF, your address is not revealed, so it can’t be sold or distributed.  Less junk mail means less wasted time, and it’s better for the environment.
  3. Budgeting. If you budget your giving on a monthly or yearly basis, it can be difficult to find charities to fund in sync with your giving.  A CGF enables you to store money ahead of time and decide on grants later.

Are there any disadvantages to a CGF?
Since donations are all done through the CGF organization writing a check to your recommended charities, you cannot do instant credit-card donations in response to say, a friend raising money through a walk or pledge drive.  There may be a lower limit to each donation you recommend, something like $100.  Also, there is usually a small annual fee, like any investment fund.  We keep our CGF at Schwab, which charges 0.6%, with a minimum fee of $100/year.

How do I start a CGF?
Simply Google “Charitable Gift Fund“, and you’ll find a number of banks that will set one up for you.  We chose Schwab because we already had other accounts there, and we’ve been happy with how easy it is to recommend grants through their website.


11 thoughts on “Charitable Gift Funds

  1. A potential advantage mentioned in the opening paragraph is not followed up in the numbered list: affecting your taxable income on your own schedule. I was brought up under the strong conviction that it is good stewardship to reduce your tax payable as much as possible (within the bounds of the law!) in order to free up your wealth for investment in God’s kingdom, however you choose to do that. But that view was combined with a political conservatism which assumed that the government was just going to waste anything you gave it. Some readers and authors of this blog may have a more hopeful assessment of government’s ability to achieve some good. If so, I’d love to hear your thoughts on the Christian attitude toward paying taxes and how tax law should affect our financial planning. Grace and peace, –R

  2. Hi RG, thanks for your comment. In advantage #3 (Budgeting), I didn’t note all of the reasons one might want to schedule donations on your own timetable, and certainly tax planning can be one of those reasons.

    My personal view on taxes is that they should be paid (the whole “render unto Caesar” thing), but that money is probably not the most effective way to aid the poorest of the poor, nearly all of whom are not in the U.S. where I live. Still, for my own tax situation, I have not found tax planning to make a significant difference in the amount of taxes I pay. Either my income is too regular, or I don’t know the right planning strategies!

  3. Ed–

    You are right: if you have stable income and stable giving, then there’s not much to think about. In recent years I have had both unstable income (self-employment, going back to school) and unstable giving (major church capital campaign), and in that circumstance it makes a difference on taxes if major giving is matched with higher income.

    Anyone else have thoughts on the interplay between taxes and stewardship? Grace and peace, –R

  4. R–

    As a voter, I would like to see effective international aid increased. But the reality is:

    1. It’s a tiny percentage of the national budget.
    2. A very large portion of that aid goes not to the poorest countries, but to ones in which the US has political interests (top 3: Iraq, Israel, Egypt).
    3. The vast majority of aid does not reach the poorest of the poor even in those countries.

    So in the present system I would rather minimize my taxes as much as possible and distribute my money myself.

    Of course, there’s lots more to be said, but this is the best I can do in a blog comment box.

    • G–

      You imply that there is no Christian or moral obligation to redistribute wealth within our own political community (state or nation) because doing so does not effectively alleviate the worst poverty in the world, which is outside our own community. Do you agree? I am tempted to agree myself, but I have heard arguments from Christians to the contrary. Is there any truth to the proverb that charity begins at home? Grace and peace,

      • R–

        In my reading of the Scriptures, I see the following priorites for wealth redistribution:

        1. One’s own family (I Tim 5:8)
        2. The poor in the global Body of Christ (I Cor 8, esp. vss. 13-15)
        3. Wherever we encounter great need. (too many to count, but Luke 10:25ff is one example)

        Since most (but not all) people reading this blog have families that are already comfortably middle class, I think it makes the most sense to focus on sharing within the global church, and on people who make less than $2 a day, nearly none of which can be found in the US. By the way, for an illuminating article comparing poverty in Appalachia and in Central Africa, see the Economist article The Mountain Man and the Surgeon.

        How about you? Do you think there’s a strong biblical argument to be made for focusing charity on domestic poverty?


      • Responding to Gary’s ? of 9 Oct: Do you think there’s a strong biblical argument to be made for focusing charity on domestic poverty?

        I dunno. I think often about your caveat above: “in the present system.” As individuals we have the frustration and the luxury of being able only to nudge “the system”, not design it from scratch. Why luxury? Because we can focus on what we care about most, knowing that other things are mostly taken care of somehow. If the world were funded based on my historical giving priorities, there would be no symphonies, cathedrals, universities, or baseball stadiums–and that would suck. But maybe if no one else were making those things happen, I would have different priorities.

        So sure, there probably is some Christian calling as a responsible citizen to address inequality within our political community. I think you and I just share a prudential judgment that it’s not the most pressing need “in the present system” of government assistance and private charity in the U.S. I guess I’m just encouraging us all to think a little more about the assumptions we’re making when we come to our conclusions.

        To come at it from another angle: Do you think there’s a strong biblical argument to be made for a Congolese citizen to focus charity on domestic poverty?

  5. Having been audited myself (2 years in a row, and counting!), I have strongly considered getting a GCF, but I’ve held off, primarily because I’m a cheapskate and the fees seem more expensive than what I feel it’s worth.

    Can people who use GCF’s chime in on the economic tradeoff?

    • I’d also like to hear from other people who use CGF’s, or people who choose not to.

      Digging a bit deeper, here are a few more factors affecting one’s decision to use a CGF:

      1) Amount of Giving: if you give $1000/year, a CGF is not for you, since the fees and minimum balance are too high. On the other end, if you give $1M/year, a CGF may not be for you either, and you may want to start your own foundation or look at other custom solutions. I think CGF’s make sense for those of us giving in the $10k-$100k/year range.

      2) Fees and value-add: say you give $20k/year, with CGF admin fees of $120/year (0.6%). Let’s consider other scenarios for how you could give the money without a CGF:

      – Put the money in a money-market fund earning 0.3% (0.2% after taxes), and donate it all at the end of the year, splitting it up among hand-picked charities.
      PROS: no fees
      CONS: over the year, you only earned 0.2%, and you have to do your homework to choose the charities by 12/31.

      – Put the money in stocks or mutual funds, earning a highly variable rate, selling it all and donating proceeds at the end of the year.
      PROS: possible much higher return
      CONS: possible much lower return, and profits are taxed at your marginal income tax rate. Also, “homework” deadline issues in both choosing charities and choosing funds.

      – Buy stocks and donate appreciated/depreciated stock
      PROS: no income tax on appreciated assets
      CONS: it’s a big pain to file stock donation forms with charities

      3) Psychological factors: let’s say you budgeted giving $20k this year. But you only found a few charities and donated $18k among them. Then you got busy over the holidays and accidentally forgot to donate the last $2k. I would argue that a $20k CGF donation (with fees) is better than an $18k donation because the former gave you an easy way to live up to your prior budgeted commitment.

      In summary, I agree that the fees of CGF’s take away from what you could theoretically give, but my opinion is that they are small in comparison to bigger factors like money management and budgeted giving goals. As an analogy, I could save on gas by biking instead of driving to work (and many people do), but I personally am too lazy and feel it would be counterproductive to me. Your mileage may vary, so to speak.

      • I totally agree that you’ve got to find some system that works for you. A set of “good practices” that drain you and keep you from following through on giving are worse than worthless.

        That said, since I raised the role of taxes earlier, I just wanted to follow up on Ed’s point about donating appreciated stock. This is probably the biggest way you can reduce your tax bill unless you have widely variable income from year to year. (Or was a few years ago when more of us had appreciated stock!) But it does require a lot of paperwork and record keeping. But here’s the gist if you’re interested:

        The IRS allows you to choose your inventory method for stock or mutual fund as long as you are consistent. If you choose FIFO (first in, first out), any sold or donated stock or mutual funds will be reckoned as the oldest of its kind in your portfolio. When you want to make a major gift, you look at the earliest chunk of stock. If its market value is higher than its basis (what you bought it for), you have a capital gain. You donate the stock and don’t pay taxes on the gain. If its market value is lower than its basis, you have a capital loss. You sell the stock for cash and claim negative income on your tax return. You donate the cash and also claim the usual charitable deduction. You do have to be aware of “wash” rules against purchasing the same kind of stock within a certain period from the sale or donation.

        As I said, this is only relevant to people with the financial and psychological means to make it worthwhile. But in the right situation it can increase effective giving by at least 15% (the lowest capital gains tax rate) or more.

  6. Pingback: How to Get Started in Giving « Simple Living for Just Giving

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