Psst. Want to get a giant tax break and feel good about it? You may be in the market for a donor-advised fund.
Donor-advised funds—plans in which donors contribute to an account and take an immediate charitable deduction, distributing the money to charities over time—have been part of the charity landscape for years. Right now, though, they are booming, even as overall charitable donations are mostly stagnant.
Fidelity Charitable, a donor-advised fund run by Fidelity Investments, saw contributions increase 89 percent in 2012, according to The Chronicle of Philanthropy's latest ranking of top charities. It now ranks second only to the United Way. Meanwhile, contributions to the United Way rose less than 1 percent, and in a broader survey of charitable giving by the Giving USA Foundation, donations in 2012 fell well short of the peak in 2007.
The growth of donor-advised funds is potentially great news for charities—but there is a catch.
While money is flowing into donor-advised funds, considerably less is flowing out in the form of gifts to charities. In 2012, the funds took in almost $9.64 billion, but gifts to charities from the funds reached just $7.7 billion, according to a report by the National Philanthropic Trust. And the total payout from these funds, while higher than the average from foundations, is falling. It was 17.1— percent of assets in 2011, down from 17.6 in 2010.
(Read more: Why the wealthy don't give more to charity)
"There are no requirements that these funds give out money at all. Anything that's given is just because the donors wanted to. Philanthropic organizations are required to give out 5 percent, and some people think even that's too small," said Stacy Palmer, editor of The Chronicle of Philanthropy. "Fidelity and others are trying to do what they can, but they don't have a lot of leverage."