A donor-advised fund (DAF) is an increasingly popular tool for charitable giving, offering individuals, families, and businesses a flexible and efficient way to support their philanthropic goals. By combining immediate tax advantages with strategic giving opportunities, DAFs empower donors to make a meaningful impact while simplifying the process of managing charitable contributions.
A donor-advised fund is a charitable investment account established to support philanthropic endeavors. Once a donor contributes assets to a DAF, the funds are invested for potential growth. The donor retains the privilege of recommending grants to qualified charitable organizations at any time.
This structure allows donors to:
Take an immediate tax deduction for their contribution.
Strategically allocate funds to charities over time.
Potentially grow their charitable assets through investment earnings.
Establish the Fund: The donor opens a donor-advised fund account with a sponsoring organization, such as a public charity, financial institution, or community foundation.
Contribute Assets: The donor contributes cash, securities, or other assets to the fund. These contributions are tax-deductible in the year they are made.
Invest the Assets: The sponsoring organization invests the assets in professionally managed portfolios, allowing them to grow tax-free.
Recommend Grants: The donor recommends grants to IRS-qualified 501(c)(3) charities at their discretion.
Make an Impact: The chosen charities receive funding to support their missions, aligning with the donor’s philanthropic values.
Tax Deduction: Donors can claim a tax deduction in the year they contribute to the DAF, even if grants are distributed later.
Appreciated Assets: Contributing appreciated securities can help donors avoid capital gains taxes while maximizing their donation value.
Strategic Philanthropy: DAFs allow donors to take time to decide which charities to support, ensuring their contributions align with personal or family values.
Legacy Planning: DAFs can be used as a tool for involving family members in charitable giving, fostering a legacy of philanthropy.
One Contribution, Many Grants: By making a single contribution to the DAF, donors can distribute grants to multiple charities over time.
Record-Keeping: The sponsoring organization handles all administrative tasks, including tracking contributions, managing investments, and issuing grants.
Tax-Free Growth: Contributions are invested and grow tax-free, increasing the potential amount available for charitable grants.
Anonymous Giving: Donors can choose to remain anonymous when recommending grants, offering privacy in their philanthropy.
A DAF is ideal for individuals, families, or businesses who:
Want to maximize their charitable impact while reducing tax liability.
Need time to decide which charities to support.
Have appreciated assets they wish to donate efficiently.
Seek to involve their family in long-term charitable planning.
Desire a streamlined approach to managing multiple charitable gifts.
While DAFs offer numerous advantages, it’s important to understand their limitations:
Once contributed, funds cannot be withdrawn for personal use.
Grants can only be made to IRS-qualified charities.
Fees may apply for fund management and administration.
Choose a Sponsoring Organization: Research and select a reputable DAF sponsor that aligns with your philanthropic goals and investment preferences.
Contribute Assets: Decide which assets to contribute, keeping in mind potential tax benefits.
Develop a Giving Strategy: Reflect on your values and the causes you wish to support, involving family members if desired.
Start Granting: Recommend grants to charities as your funds grow, making an impactful difference.
Donor-advised funds provide an efficient and impactful way to manage charitable giving, blending immediate tax benefits with long-term philanthropic flexibility. Whether you’re looking to support your community, address global challenges, or create a legacy of giving, a DAF can help you achieve your goals while making a difference. Consult with a financial advisor or DAF sponsor to explore how this tool can support your charitable vision.
National Philanthropic Trust. “What Is a Donor-Advised Fund?” https://www.nptrust.org/what-is-a-donor-advised-fund
Fidelity Charitable. “How Donor-Advised Funds Work.” https://www.fidelitycharitable.org/guides/how-donor-advised-funds-work.html
IRS. “Charitable Contributions – Substantiation and Disclosure Requirements.” https://www.irs.gov/charities-non-profits/charitable-contributions
Schwab Charitable. “Benefits of a Donor-Advised Fund.” https://www.schwabcharitable.org/donor-advised-fund-benefits
-Aristotle
Having an honest, trusted, and knowledgeable advisor who can help you make smart decisions and create a path to your financial goals is the best way to secure your future and the future of those you care about.
*Source: CFF Board (cfp.net), February 3, 2022
© 2024 Drexel & Co. All rights reserved. Investment Advisory Services offered through Investment Advisor Representatives of Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. Cambridge and Drexel and Co. Financial Planning are not affiliated. Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a broker-dealer, member FINRA / SIPC, to residents of [AL, AZ, CA, IN, TN, DE, FL, GA, ME, MD, MA, MI, MS, NC, OH, PA, TX, VA, WV].
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.