Charitable gift arrangements that provide alternatives to a private foundation.

• Author: Young, Patrick L.

While a private foundation may be an appropriate charitable vehicle for some taxpayers, many may be better served by alternate charitable arrangements. This column briefly discusses alternatives to private foundations.

Donor-advised funds

Donor-advised funds, also known as charitable gift funds or philanthropic funds, allow a donor to make a charitable contribution to a specific public charity or community foundation that uses the assets to establish a separate fund. The public charity or community foundation typically receives grant requests from those charities seeking distributions from the advised fund, and the donor suggests which grant requests should be honored. The donor retains the right, generally during his or her lifetime, to make recommendations for using the separate fund's income and principal. However, the donor can only make recommendations; he or she cannot make a binding directive. The fund is advised rather than directed by the donor. Also, the fund is limited to supporting the public charity's exempt purpose.

Law change alert: The law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97, has temporarily increased the limitation on cash contributions to charities from 50% to 60% of adjusted gross income (AGI) for tax years beginning after Dec. 31, 2017, and before Jan. 1, 2026. AGI limitations for noncash contributions remain the same during those years.

Planning tip: Under the TCJA, the standard deduction has almost doubled. Combined with the capping of the state and local tax deduction, changes in the mortgage interest deduction, and the elimination of miscellaneous itemized deductions, there is a likelihood that fewer taxpayers will be itemizing for tax years 2018-2025. For contributions to exceed the standard deduction, taxpayers may want to "bunch" or increase contributions on alternating years. One possible vehicle for bunching contributions is the donor-advised fund. Taxpayers can claim the charitable tax deduction in the year of funding the donor-advised fund and schedule grants over the next two years or other multi-year periods.

A donor-advised fund is a fund or account:

* That is separately identified by reference to contributions of a donor or donors;

* That is owned and controlled by a sponsoring organization (see paragraph below); and

* For which a donor (or any person appointed or designated by the donor) has, or reasonably expects to have, advisory privileges as to the distribution or investment of amounts held in the fund or account (Sec. 4966(d)(2)(A)).

A sponsoring organization of a donor-advised fund is an organization that:

* Is described in Sec. 170(c) (i.e., an organization to which deductible charitable contributions may be made other than a governmental entity, without regard to the requirement under Sec. 170(c)(2)(A) that the organization be organized in the United States);

* Is not a private foundation; and

* Maintains one or more donor-advised funds (Sec. 4966(d)(1)).

Donor-advised funds are tax-qualified public charities under Secs. 501(c)(3) and 509(a). Contributions are therefore tax-deductible under the standard rules for public charities. Donor-advised funds offer the following tax advantages:

* The contributions to the fund are tax-deductible immediately even though the fund may...