Is there a benefit to creating a donor advised fund to make charitable donations instead of simply donating to organizations each month?

Question

I'm looking to set up recurring charitable donations to various groups, and I'm considering using a donor-advised fund through Fidelity or Vanguard.
General question: Is there a benefit to placing money into an account like this, where part of the earnings (and my monthly contributions) will be reinvested, and the remainder will be donated, or should I simply donate these monthly contributions directly to the organizations since my total donations in the latter case might be higher?

Specific data behind my question

My question is very general, but these are the specific calculations that motivated me to ask this question. If I make these assumptions:

1. The initial principal is $5000
2. The account earns on average 5% a year
3. I contribute $1200 to the account every year
4. 50% of the earnings are reinvested, 50% are donated each year
5. A 36-year horizon

I calculate that the fund will donate $32,724.37 to charity in total (not adjusting for inflation). However, if I instead donated $1200 each year, plus the initial $5000, I would donate a total of 5000 + 36*12000 = $48,200.

With these assumptions, a growth rate of 6.57% is required for the investment to donate the same amount, not including inflation, as the simple monthly donations, so should I just donate on a monthly basis, or does the investment fund have benefits I'm unaware of?

EDIT: My initial growth rate of 6.46% was a bit off. The correct figure is 6.57%, which I calculated using Mathematica 8 and the assumptions stated above. Here is the code, for those who are curious.

 CalcDonation[seed_, growthrate_, reinvestrate_, annualcontrib_, horizon_] :=
  Module[{balance = 0, earnings, reinvestamount = 0, donation = 0},
   For[year = 1, year <= horizon , year++,
    (* No annual contribution in first year *)
    balance += If[year == 1, seed, annualcontrib + reinvestamount];
    earnings = balance * growthrate;
    reinvestamount = earnings * reinvestrate;
    donation += earnings *(1 - reinvestrate);
  ];
 donation
];
FindRoot[CalcDonation[5000, g, 0.50, 1200, 36] == 5000 + 36*1200, {g, 0.05}, Evaluated->False]

Note: These calculations don't include the fees associated with the funds, either. Although the expense ratios of the underlying funds are different, both Fidelity and Vanguard assess additional fees of 0.60%. Vanguard also requires a higher minimum balance, but I used $5000 (the minimum balance for a Fidelity account) as an example.

Answer 1

There are a number of benefits to this type of account.

If one has highly appreciated stock (think Apple), donations of the stock are taken at current value, so for example, I donate $10,000 worth of shares, which cost me $100. In the 28% bracket, and itemizing, I see a $2800 benefit. But, I also avoid a $9900 capital gain and the 15% tax on that, or $1485. In this example, the fund comes into play as it would allow me to break up that $10,000 into smaller donations, and over a number of years.

Next example - In my article some years ago Fun with Schedule A I describe how a strategy of 'bunching' ones itemized deductions every other year can help push people into the ability to itemize where normally they just miss doing so. Using the charitable fund can help people smooth out their contributions to the end charities while actually making the out of pocket withdrawal every other year.

Last - there are many whose income is irregular for whatever reason. This type of account can be useful to help people in this situation make a deposit in high income/high tax rate years, skipping the deposit in low income/low rate years, but still keep up with the annual charity support.

Obviously, one's goal is to help the charities they wish to support, it's silly to donate 'for the deduction.' But, for those who are charitable, these strategies help them divert more money to the charity and less to Uncle Sam.

Sorry, I'm not sure about the math to show that 6.46%. My answer was to share the benefits of using these types of accounts.