Charitable Giving through Investment Not Just for Ultra-Rich

Investment in charitable giving funds, something only the ultra-wealthy used to do, is now becoming increasingly popular.

With investment companies and some banks managing charitable gift funds, individuals are able to open giving accounts and control where the money is given.

One indicator of how popular charitable gift funds are becoming is the amount of money flowing through these accounts. For example, the Vanguard Charitable Endowment Program claims by the end of January 2011 it contributed over $2.8 billion to public charities. Schwab Charitable is boasting over $2 billion altogether given.


There are a number of perks for individuals who open an account with a charitable gift fund. One of the biggest is an immediate tax credit once funds are moved into the account. And assets that have appreciated can be given without the giver incurring capital gains taxes. Furthermore, investors get to control where the money is given, how much, and when. Giving (also called "grants") can be automated, with regular contributions or one-time gifts. The charities are verified by the fund, so the investor knows the entity is legally entitled to accept contributions.

Another big benefit is the option to choose truly anonymous giving, meaning the fund makes the gift and the name of the investor is never revealed. Investors who want to "do their alms in secret" and those who don't want to get on another donor mailing list, will find this option attractive. But investors can also have their account named after them, just like the wealthy do, and can make contributions that way as well.

Another perk to a giving fund account is investors have the option of designating how the funds are invested, within certain guidelines. Usually the money is placed in mutual funds and managed by a mutual fund manager, but investors have the option to choose which mutual funds. Historical data for the performance of these funds is readily available.

Some companies will even match funds placed by their employees into a charitable giving account. One couple, who asked to be anonymous, said one of their employers had a matching program so that if they gave $10,000 or more in a year to their charitable giving fund, the company would add $7,000 at the end of the year.

Over the last 10 years or so, they put their tithe in the gift fund and then gave it to their church from their gift fund. They now have well over $70,000 in their gift fund that they control, which is mostly made up of the matching funds contributed by their employer, combined with earnings. And that's after they gave away about $15,000 of the matching funds over the 10-year period.

What's Required

Investment companies make opening a charitable giving account easy, either by phone, mail, or online. The amount needed to open a giving account averages about $10,000. The Bank of America Charitable Gift Fund and the leader in charitable giving, the Fidelity Charitable Gift Fund (affiliated with Fidelity Investments), will, however, open an account for as little as $5,000 for individuals or $25,000 for corporations. (By the way, as of February 22, Fidelity boasted over $161 million has already been given to public charities in 2011 alone.)

Assets other than cash can also be used to open or contribute to a gift fund account, such as cash equivalents, publicly traded stock, mutual fund shares, bonds, certain private or restricted stock, and even select real estate. However, investors are not allowed to withdraw funds for themselves.

Things to Watch For

Some funds, but not all, have a minimum contribution amount after the account is open, like $1,000. It's not unusual to see a minimum grant recommendation of $250. Funds cannot be given to fulfill a pledge, so investors would be advised to avoid making a promise to a charitable group. And the contributor cannot receive any benefit from the money given, like getting a wing of the hospital named after them or free tuition for their child at the church preschool program. Some funds charge administrative fees based on a percentage of the money invested.

Additionally, the funds can only be given to charities that meet the fund guidelines, which is usually any 501(c)(3) designated charity. Most churches and non-profit groups have 501(c)(3) status with the Internal Revenue Service and are therefore eligible. And most charitable giving funds give investors the ability to research charities.

If a charity is not already on the list, an account holder can request the group be considered. Once the fund does the appropriate research and verifies the group's non-profit status, it is added to the list.