Understanding the Giving Vehicles

A unique sort of giving vehicle typically managed by a sponsor—a community foundation or the charitable arm of an investment fund. It functions as a charitable investment account, with the sponsor making gifts from based on the donor’s requests. Donors get a charitable tax deduction when they give this way; in exchange, they relinquish aspects of control of the donated funds to the sponsoring institution

A nonprofit entity with 501(c)(3) tax status, whose funds typically come from one source (e.g., a founding individual or family), and are distributed as charitable grants. (In contrast, a private operating foundation uses its funds mainly to conduct its own charitable activities rather than to make grants.) The Internal Revenue Code requires that at least 5 percent of its endowment each year is spent. The required distribution includes reasonable administrative expenses, such as staff salaries, as well as the grants.

While large, staffed versions of these look like foundations, they have no special tax status. For tax purposes, this kind of vehicle is a pass-through and is just an extension of your checkbook. If this vehicle makes a charitable contribution, it gets the deduction; if it makes a political contribution or socially motivated investment, it doesn’t.

It is the simplest way to make a gift. You can write a check, use your credit card, or instruct your broker to transfer securities to an organization. You can ask your accountant or bookkeeper to track your donations or track them yourself using a money management tool like Quicken or a spreadsheet.