Losing a loved one is difficult, and, as a way of honoring them, you may want to make a charitable contribution in their memory. While you could make a one-time donation to their favorite charity, a donor-advised fund allows your gift to grow so that you can award grants in your loved one's name for years to come, keeping their memory alive. Here's what you need to know about starting a donor-advised fund.

What are donor-advised funds?

A donor-advised fund is a charitable donation where the donor (you) determines where and how the donation is spent. Think of a donor-advised fund as a personal bank account for philanthropic endeavors. You and other friends and family members make charitable contributions to the fund once or annually.

Once the fund is set up, you can issue grants to your loved one's favorite charities and causes. For example, if your loved one was a nurse, you can award grants to nursing students at the local community college to help them pursue their dreams.

What is a grant?

A grant is a sum of money awarded to a charity or individual for a specific purpose. The money is not a loan and is not repaid. Grants are typically given by foundations, government agencies, corporations, and donor-advised funds.

How do you start a donor-advised fund?

You can start a donor-advised fund at most major financial institutions or community foundations with an initial deposit and some paperwork. Once you've set up your account, you will be assigned a financial adviser who will help you invest the money so that your funds grow each year and manage the grants you make.

What are the benefits of starting a donor-advised fund?

There are many benefits to starting a donor-advised fund, including:

  • Tax benefit. You take an immediate tax deduction when you contribute to the donor-advised fund. Talk to your tax adviser for details.
  • Flexibility. You can recommend grants from the fund to your loved one's favorite charities at any time, or you can arrange for an annual meeting to determine eligible recipients.
  • Simple. Donor-advised funds are easy to set up and manage, making them a convenient way to honor a family member.

If you're interested in starting a donor-advised fund, talk to your financial advisor or the institution where you'd like to set up the fund. They can help you get started and answer any questions you may have.