November 2018 | Print-Friendly Version
For many people, the first impulse after a natural disaster strikes is “How can I help?” While any financial assistance you offer is sure to be appreciated, with a little planning, you can maximize your gift’s charitable impact. This month’s Wealth Management Insights discusses donor-advised funds and why they are ideally suited for charitable giving following a natural disaster.
What you should know:
- In the event of an emergency, most appeals for donations occur during and immediately after the crisis, leaving rebuilding and prevention efforts critically underfunded.
- The Federal Emergency Management Agency has broken down emergency management into four distinct phases: mitigation, preparedness, response and recovery.
- The response phase, which takes place in the immediate aftermath of an emergency, typically lasts up to six weeks. It’s estimated that 80–90% of relief donations are made within the response phase.
- By the time the recovery and mitigation phases have begun, appeals for relief have mostly dried up. This means comparatively few funds are applied to rebuilding and preventing future disasters.
- The unique benefits of donor-advised funds make them an excellent tool for disaster relief.
- When you set up a donor-advised fund, you’re setting aside funds from the rest of your wealth management plans. This structure lets you donate immediately in the event of a sudden emergency – you don’t have to reconfigure your existing financial plans to give.
- Donor-advised funds are distributed entirely at your discretion. If you so choose, you could donate immediately during the response phase of a disaster but earmark the rest of your gift for the recovery and mitigation phases.
- Donor-advised funds let you help yourself as you help others. Not only do the funds’ investments grow tax-free, but your initial and any future contributions to the fund are deducted from that year’s taxes – a useful benefit if you plan on bunching deductions as part of your tax strategy.
- Setting up a donor-advised fund is easy.
- You open the fund by making an initial donation of cash, stocks, bonds or other select assets.
- A nonprofit sponsoring organization invests the assets and manages the fund.
- You instruct the sponsoring organization to disperse funds to the charities of your choosing.
What you should do now:
The popularity of donor-advised funds has increased significantly following the passage of the 2017 Tax Cuts and Jobs Act. If charitable giving is a part of your broader wealth management plans, a conversation with a Baird Financial Advisor can help you determine if donor-advised funds make sense for you.