When donating to charities, especially this holiday season, do you know where your money is going? Before giving money to a homeless person, many people stop and think about what they might use the money for. Are they going to use it to support a drug addiction or will they actually use it for food? This type of mindset should be used when deciding to give to a charity.
People tend to give to better known philanthropies such as the Salvation Army, Feed the Children, the United Way. On a list of top-money raising charities there is Fidelity Charitable, which most people have never heard of. Yet people have given an amazing amount of money to this charity. Fidelity Charitable is a branch of a huge Boston based management firm and in 2012 raised more money than the American Cancer Society and the American Cross; $3.6 billion more to be exact. This charity gives immediate tax deductions to donors, however unlike better-known charities the money sits in ‘holding tanks’. Legally, there is no specific limit to how long the money can be kept there.
The fund is made up of 58,000 personal accounts, and other companies like Fidelity are Charles Schwab, Vanguard, and Goldman Sachs allow people to donate and collect the benefits and choose the charity they want to give to later. They are called donor-advised funds and a recent estimate of money in these funds is at $45 billion. This is more money than the Bill and Melinda Gates Foundation! Make sure your money is going to a working charity so your money isn’t waiting in a fund. Yes, eventually the money has to go to a charity, but there is no telling when. Donor-advised funds have existed since 1930 and have been helpful to business owners with specifications such as, those who sell their business in December and face steep tax bills can quickly donate a large sum of money to get a tax deduction and not decide which charity they want to give to until a later time.
Many working charities were concerned with donor-advised funds:
‘Sure seems different from the rest of us who work for a cause we ask the public to support’ – Salvation Army
‘Charity is being sold as a way to lock up tax breaks and to control your money’ – Humane Society
No laws regarding donor-advised funds came into play until 2006, requiring them to disclose the amount of money their clients were contributing to donate each year. Hopefully more laws will be put into place regarding a time limit for money to sit in the accounts.