Tracking the dollars and rating the charities has become more important if the clients want to see their dollars make a difference. If there's been a hurricane or a tsunami and donors rush out to give, they tend to bristle if they find out later that their gift went to set up a phone system.
Snyder points to many small trends that are giving a large boost to charitable giving, including online platforms and Web sites that allow users to rate the charities the same way Amazon.com rates books.
"One of the most difficult problems for donors is how to find good organizations to fund," says Snyder.
Donor-Advised Funds Vs. Private Foundation
Identifying charities is hard enough, but then there's the question of how best to give it away: Should you put it in a donor-advised fund? Or a charitable remainder trust or charitable lead trust? Or perhaps set up a private foundation?
The donor-advised fund, the fastest-growing vehicle, is the relatively new kid on the block. These funds generally are 501(c)(3) public charities that hold the funds of donors as separate accounts, and the money is invested and allowed to grow over time, and then throws off money as the donor advises. The largest is run by Fidelity, which had $4.8 billion in its fund at the end of January, according to Sarah Libbey, the interim president of Fidelity Charitable Gift Fund. Though the fund makes available pools of mutual funds, the managers themselves can also manage the money themselves in a separate program. Schwab also has such a program.
"These investment advisors are realizing that they need to accommodate the charitable giving needs of their investors as they're producing financial plans, and they also know that some of their investors prefer to have them as their money manager," says Fidelity's Libbey. "So yes we have found that increasingly popular as an offering."
Some planners, however, argue that donor-advised funds don't offer as much flexibility, since the giver is not technically in control of the dollars anymore, and that they are also difficult to get out of. "As for donor-advised funds," says planner Stephen Barnes, with Barnes Investment Advisory in Phoenix, "that's a hot area, [but] we've heard from a lot of clients and other acquaintances about a number of hassles going down that route. They are a real hassle to get out of once you start. You want to be sure that's what you want to do forever." He suggests sometimes it is enough to just go directly to the charity.
Another option is for a client to set up a private foundation. These used to be considered the private preserve of the ultra-rich, but technology and new players in the market have brought them down from the nosebleed realms to within reach of people with a lot less money.
Says planner Matthew Chope, a CFP licensee with The Center for Financial Planning, a Raymond James affiliate in Southfield, Mich., one of the great breakthroughs has been "how easy it is to establish ... a charitable foundation." Just ten years ago, he says, you could spend $10,000 just to establish the foundation, "and now it's practically free. You can save the $10,000 and put it in the foundation."
It has become somewhat easier in part because of turnkey foundation services like those offered by Foundation Source and Renaissance LLC. "I think that one of the things that financial advisors used to recommend was that unless you have $5 million, don't bother setting up a private foundation, set up a donor-advised fund," says Snow. "And I think what's happening now is that because the setup charges aren't that expensive and the actuarial management fees are analogous to a donor-advised fund, there's no reason why you can't set up a private foundation."
Snow says her firm can get them started for as little as $250,000. She finds that a lot of clients want to road-test it first, to put in a quarter or half a million bucks, to see if it works-and see if the kids will get involved and the family will collaborate. You can even get the filtering services of the database that Foundation Source provides to look through its charity database to see which charities are OK as far as the IRS is concerned.