Donor-Advised Funds: An Effective Way To Give
Donor-advised funds (DAFs) are a centralized vehicle for charitable giving that makes it easy for donors to dedicate funds to support their favorite nonprofit organization. They also provide an operationally convenient and tax-efficient method for donors to manage their charitable giving.
With a DAF, charitably inclined individuals, families and businesses make an irrevocable gift to a public charity that sponsors a donor-advised fund program, and may take an immediate tax deduction. Donors can then recommend grants over time to IRS-qualified 501(c)(3) public charities. DAFs also allow donors to approach their charitable giving thoughtfully by involving other family members or colleagues in their philanthropic decisions. Most DAFs accept donations of long-term appreciated securities and other assets, and donors can advise how the funds are invested which could potentially allow tax-free growth, which could result in more money for your charity.
How does it work?
- Establish your Donor Advised Fund by making an irrevocable, tax-deductible donation to a public charity that sponsors a DAF program
- Advise the investment allocation of the donated assets (any investment growth is tax-free)
- Recommend grants to qualified public charities of your choice
Main Advantages of a Donor Advised Fund
- Simplicity — The DAF sponsor handles all record-keeping, disbursements, and tax receipts.
- Flexibility — Timing of your tax deduction can be separate from your charitable decision making.
- Tax-efficiency — Contributions are tax-deductible and any investment growth in the DAF is tax-free. It is also easy to donate long term appreciated securities, eliminating capital gains taxes and allowing you to support multiple charities from one block of stock.
- Family legacy — A DAF is a powerful way to build or continue a tradition of family philanthropy.
- No start-up costs — There is no cost to establish a donor advised fund. However, there are often minimum initial charitable contributions to establish the DAF (typically $5,000 or more).**
- No transaction fees — Once approved, 100% of your recommended grant goes to your qualified public charity of choice.**
- Privacy if desired — Donors may choose to remain anonymous to the grant recipient.
** Sponsoring organizations generally assess an administrative fee on the assets in a DAF. These fees vary by the charity that sponsors a DAF Program.