How you can give back:
Have you heard the ancient legend about a ruler who wanted to reward one of his servants for their incredible bravery? The story goes that when the ruler asked the servant what they desired, the servant made a surprising request: grains of rice. Specifically, one grain of rice for the first square of a chessboard, then double the amount for each subsequent square.
The ruler, thinking the request to be modest, agreed. What he didn’t realize was that by doubling each previous square’s contents over 64 squares, he was promising the servant over 18 quintillion total grains of rice!1
I love this legend because it shows the power of exponential growth. For that reason, it’s common to see the story as an object lesson for investing.
Today, though, I’m sharing it for a different reason:
The power of charitable giving.
When it comes to charitable work, the impact of even a single donation is often quite a bit larger than it may seem. When a single life is changed, that person can go on to affect even more lives. Each change creates a ripple effect that can be as exponential as grains of rice on a chess board.
But how to ensure your charitable giving actually has this kind of effect? How can we create the biggest impact on our community? It’s a question I am frequently asked. So, to answer it, I wanted to write to you about the benefits of a donor-advised fund.
If you’ve never heard of a donor-advised fund, it is a type of investment account designed specifically to help people support charitable organizations they care about. Contributions you make may be eligible for an immediate charitable tax deduction, subject to applicable tax rules and limitations, and the money in that fund can then be granted out over time to eligible charitable organizations.
How can this type of fund make a chess-board-sized impact?
Take the example of the Salwen family. Back in 2008, they decided to sell their mansion in Atlanta and downsize to a home roughly half the size. That in itself is not so remarkable. What was remarkable is that they decided to donate half of the sale to charity.
When they found a cause, they contributed to a donor-advised fund. They called their fund Hannah’s Lunch Box Fund. (That’s a nifty feature of a donor-advised fund; you can name it whatever you want!) Today, the Salwens still grant money from this fund to various projects. For example, their fund often provides education and materials to villagers in impoverished countries on how to become self-reliant. This has impacted hundreds of lives.2
That’s why a donor-advised fund is so powerful when it comes to charitable giving. It’s a way of being able to continuously support the causes you care about, because the money in the fund can grow over time andbe distributed whenever you choose. While a side benefit, contributions to a donor-advised fund may also provide tax benefits, subject to applicable tax rules and limitations.
There are also important considerations to keep in mind. Any contributions you make are tax deductible assets to a donor-advised fund, you generally surrender legal ownership and control of those assets to the sponsoring organization. While you may recommend how funds are invested and which eligible charities receive grants, those recommendations are advisory, and the sponsoring organization retains final authority.
The way I see it, there are seven benefits to forming a donor-advised fund.
1. You may be eligible for an immediate charitable tax deduction for your contributions, subject to applicable tax rules and limitations.
2. The money in your fund can be invested and grow, tax-free, over time.
3. You may have the ability to recommend how the money is invested from options offered by the sponsoring organization.
4. By putting all your funds for charitable donations into one account, it can simplify the donation process.
5. You can recommend when grants are made from the fund. For example, you could contribute today and recommend a grant five years from now, subject to the sponsoring organization’s policies and approval.
6. The fund can be a great way to create a lasting philanthropic legacy for yourself, or to recognize a loved one’s legacy if you choose to name it after them.
7. Finally, your fund can contribute to and support multiple charities.
There you have it. Seven reasons to investigate a donor-advised fund. It is one of the most convenient and powerful ways to give back to our community. And when we give back, the funds we donate can have the impact of doubling the grains of rice on a chessboard.
What could be a greater legacy than that?
If you’d like to learn more about setting up a donor-advised fund, or have other questions regarding your charitable contributions, please let me know. We are always here to help you achieve your goals, cement your legacy, and put a little more good into the world!
1https://www.mathscareers.org.uk/the-rice-and-chessboard-legend/
2https://www.ncfp.org/knowledge/donor-advised-fund-impact-story-giving-up-a-lifestyle-to-give-back/