People who have made enough money so they can afford to give some of it away typically want to control who receives their charitable gifts. An increasingly popular way to do so is through a donor-advised fund under the auspice of a public charity.

Donors can always control their giving by donating directly to their favorite charities. But that can mean considerable paperwork in the case of multiple donations, restrictions on what you can donate (your church may not be able to handle stock, for example), lack of future control, and often no creation of a legacy or involvement of your children. A private foundation can overcome these limitations, but it faces other difficulties, including payout requirements, high set-up expenses, annual tax reporting and increasing IRS scrutiny. That's why many donors are finding donor-advised funds a happy medium. Here's how they work.

A donor-advised fund is a fund in your name created inside a public charity. You make an irrevocable charitable contribution in cash or marketable securities. You may or may not be able to donate real estate, limited partnerships, artwork or other type of asset. The charity sells the assets and reinvests the proceeds in a managed portfolio. You receive an immediate federal (and sometimes state) tax deduction for the full value of your donation. For example, if you donate stock that you bought at $10 a share and is now worth $50 a share, the deduction is worth $50 a share as long as you've held the stock for at least one year. As a bonus, you don't pay any capital gains taxes on the appreciation.

The main tax restriction is that in the case of appreciated assets you can't deduct more than 30 percent of your adjusted gross income in a single year. In the case of cash, you can deduct up to 50 percent of AGI. Any amount you can't deduct in a particular year, you can carry forward into subsequent tax years.

After you make your donation, you can advise the managing charity on how much income or principal to distribute to which selected recipient charities, and when. For example, you might treat it as an endowment, giving away only the earnings each year. Or you can give away some or the entire principal. You can even wait several years, letting the money in your account grow, before making grants. The main restriction here is that the charities must be IRS-approved..

Be aware that for your donation to be considered a gift, it must be out of your control, which means that technically the charity has the authority to reject your grant recommendations. In practice, however, charities generally follow your "advice" unless it violates IRS rules, or the charity's own restrictions, such as the geographic restrictions of a community foundation.

You also can "advise" the charity how you want your donation invested. Usually the charity offers several types of mutual funds, including money markets, which range from low risk to choices that are more aggressive. Management fees commonly run one to two percent, though some initially are much lower depending on the charity and the size of the donation.

Minimum initial donations are typically in the $5,000 to $10,000 range, though they can run much higher. Subsequent contributions can be much smaller.

A donor-advised fund offers several advantages. You may donate to several charities but your paperwork is condensed to a single report by the managing charity. You can, if you choose, donate anonymously. You have flexibility in timing the gifts. You can involve your children when making your grant choices, including having them assume control when you die. Most sponsoring charities, however, unlike private foundations, don't allow your fund to exist for more than one or two successor generations, though a few will allow it to exist in perpetuity.

Charities offering donor-advised funds come in several forms. The oldest are local community foundations. Since the mid 1990s, numerous religious groups, brokerage firms and other financial institutions have created separate charities to operate donor-advised funds. Some national independent foundations and national charities have also begun offering them.

Which type of charity is best for you? Financial firms make it easy to set up your fund and they have fewer restrictions, but they generally don't provide much advice on specific charities to give to. Community and religious foundations can provide strong advice on local needs of your community.

When choosing a charity, carefully examine management fees, donation restrictions, advice capabilities, and investment choices.

This article was produced by the Consumer Affairs Dept. of The Financial Planning Association and provided to you courtesy of Nigel B. Taylor, CFP, Santa Monica, California. If you have any questions or concerns regarding this, or any other financial topic and are a resident of Southern California, please call me at 1-800-444-2237 (California residents only please), or click on the "MORE INFO" button to arrange for a free initial consultation in the comfort of your home or office.