Fidelity Charitable Gift Fund: Does a Donor-Advised Fund Make Sense for Me?

By Markets Fool.com


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Millions of Americans make charitable gifts every year. In addition to the benefits of giving back to the community, making charitable donations can help you out with the IRS, giving you valuable tax benefits like a tax deduction for eligible gifts. Although most people make outright gifts as needed, some donors would prefer the ability to make a one-time substantial gift to qualify for a tax deduction but then parcel money out on an extended basis. That's exactly what donor-advised funds like the Fidelity Charitable Gift Fund allow, and by using vehicles like what Fidelity calls its Giving Account, you can fulfill your charitable intent in a way that maximizes the positive impact on your financial situation as well.

What is the Fidelity Charitable Gift Fund?

The Fidelity Charitable Gift Fund is a donor-advised fund that was set up in 1991. The overall purpose of the Gift Fund is to make it simpler for a wider range of people to make charitable donations effectively. The fund was the vision of the chairman of Fidelity Investments, but Fidelity Charitable is a separate charity with tax-deductible 501(c)(3) status, and the majority of the trustees who oversee Fidelity Charitable's funds and operations are independent from Fidelity's investment arm.

The way that Fidelity Charitable's Giving Account works is pretty simple. First, you make a tax-deductible donation to Fidelity Charitable, either with cash, stocks, real estate, or other non-publicly traded assets. Depending on what you donate and how long you've owned it, you'll get a deduction of up to the fair market value of the assets you give. The minimum that the fund accepts is $5,000.

Thereafter, you can make donations to any charitable organization you wish, as long as it's recognized by the IRS as a legitimate charity with tax-exempt status. You can make gifts immediately after setting up the Giving Account, or you can wait until a future time before making all of your gifts. Technically, what you're doing is recommending to Fidelity Charitable that it give the money you put into the Giving Account to the charity of your choice. That's why the service is called a donor-advised fund, because the donor advises Fidelity Charitable on the final disposition of the donation. In practice, Fidelity Charitable will almost always follow a donor's advice, because otherwise, its reputation for allowing its customers to realize their charitable wishes would suffer.

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The benefits of Fidelity Charitable

One benefit of the Giving Account is that money that you don't plan to give away immediately is available for investment. Fidelity Charitable makes a variety of investment options available to donors, most of which involve various Fidelity mutual funds. Asset allocation strategies, index-tracking investment pools, and socially responsible investment pools are just some of the ways that Fidelity Charitable allows donors to have their money managed. For some users, Fidelity Charitable will also allow the donor to choose an independent investment advisor to manage a portion of the donated funds.

Creating a separate donor-advised fund also has the benefit of allowing other family members to be involved in your philanthropic activities if you wish. Many people include donor-advised funds like Fidelity Charitable in their estate planning documents, with the intent of allowing children, grandchildren, and other loved ones to participate in deciding exactly what positive impact their legacy will have after their death.

Finally, Fidelity can also offer guidance on how to make the most of your charitable giving. Between recommending the donation of long-term appreciated investments, pointing you in the right direction for tax and estate planning, and offering anecdotal help in how to engage family members and the charities receiving gifts, Fidelity Charitable prides itself on being a full-service donor-advised fund.

How much it costs to set up a donor-advised fund

In exchange for providing its services, Fidelity Charitable charges fees. An administrative fee amounts to $100 per year or 0.6% of your account assets, whichever is greater. In addition, investment fees are charged to the account, with underlying fund expenses varying from 0.07% to 1.23% depending on which investments you choose. Some might take issue with the idea that Fidelity Investments indirectly profits from the separate charitable entity, but several other investment providers, including Vanguard and Charles Schwab, also have similar donor-advised charitable entities that follow similar business plans.

Given the high amounts that estate planning attorneys, tax advisors, and other professionals charge for some of the services that Fidelity Charitable provides, even expenses that can amount to hundreds of dollars per year aren't ridiculously expensive in comparison to the value of a good donor-advised fund. By comparing Fidelity Charitable Gift Fund with competing services, you'll be able to find the solution that will work best for your situation.

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