The first donor-advised funds (DAF) were first created in the 1930’s, although Congress did not authorize a legal structure for them until 1969. The popularity of donor-advised funds began in the 1990’s and continued to grow steadily in recent years and right through the economic recession.
What are DAFs, and how can having one benefit you?
How a Donor-Advised Fund Works
A DAF is a private charitable giving carrier administered by a third party created for the purpose of managing charitable donations on behalf of individuals, families, and organizations.
They promote proactive gift strategy, planning, and giving.
Types of Assets Accepted:
They open the door for you to contribute certain assets beyond cash equivalents or publicly traded, appreciated securities. For example, privately held C-corp or S-corp shares may not accepted by some charities.
DAF accounts enable you to support many charities, at any time, with just one contribution.
Since gifts come directly from the fund, they offer the opportunity for anonymity.
They can reduce the urgency to find the right nonprofit or charitable cause within a certain time frame, while still allowing you to take an immediate tax deduction in that given year.
You make the contribution in the year you choose and then decide when the disbursements will happen on your own schedule.
Consolidates your record keeping and streamlines your tax receipts, all in one secure online location.
They create a framework for allocating funds for future giving without a lot of administration.
They are a valuable estate planning tool to support your legacy goals.
They are more flexible than private foundations, which generally require a set amount of payout every year. Private foundations also require more reporting and generally have higher administrative costs.
They provide a vast array of investment options, including a plan that permits donors’ investment advisers to manage charitable assets on the client’s behalf.
They are simple to create and do not require the involvement of an attorney.
DAF allows you to take an immediate tax deduction for your contributions – separating the timing of your charitable support and your tax deduction.
Most donor-advised sponsor organizations require a minimum investment, generally between $5,000 and $10,000; others may have a higher required minimum investment. In general the fees are set based on the total assets invested. Check with your financial adviser about these specifics before you decide which DAF to use. Once you start contributing to the fund, the sponsor organization will help you set up and transfer assets. This process is usually quick and easy for the donor.
At first Donor-Advised funds require some attention and diligence. It will be helpful for you to know some of the limitations and potential challenges with DAFs. Your financial adviser should be able to guide you in the right direction for your situation.
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Although the information contained here is presented in good faith and believed to be correct, it is General in nature and is not intended as tax advice. Furthermore, the information contained herein may not be applicable to or suitable for the individuals’ specific circumstances or needs and may require consideration of other matters.
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