Donor Advised Funds

MAKING THE MOST OF YOUR CHARITABLE DONATIONS:

Donor-advised funds (DAFs) are the fastest growing form of philanthropy today because they’re easy and flexible.

HOW DOES A DAF WORK?

Think of a donor-advised fund as a personal charitable savings account. You create a DAF and contribute to it with cash, stock, or other assets like artwork or real estate. You don’t have to name a specific recipient charity right away, and you might even be eligible to take an immediate tax deduction for your contribution.

Your DAF is controlled by a nonprofit “sponsoring organization” (such as a community foundation or the nonprofit arm of a financial services firm). The sponsor invests and manages your account, and you recommend what nonprofit(s) you’d like to support.

THREE CATEGORIES OF DAFS

Commercial funds: Managed by the nonprofit side of an investment company
Benefits: low investment fees, easy to use
Community foundations: Originators of the DAF concept
Benefits: familiar with area nonprofits, offer philanthropic counseling and can help you navigate the process
Single-issue funds: Sponsoring organizations that encourage giving to a single cause or organization, like universities
benefits: easy way to donate if you have one specific charity in mind

WHOSE MONEY IS IT, ANYWAY?

Once you’ve created a DAF, the account belongs to the sponsoring organization in perpetuity. You can advise how to make gifts, but they’re not legally obligated to follow your advice. That said, sponsors almost always abide by a donor’s wishes (as long as the recipient is a qualifying tax-exempt organization).

I HAVE A PRIVATE FOUNDATION. CAN I USE IT TO FUND A DAF?

Yes!

ARE DAF GIFTS ANONYMOUS?

It’s up to you. Be aware that some DAF gifts don’t include the donor’s name or contact info by default, which can make it difficult for charities to identify and acknowledge your generosity. But you can ask your sponsor to clearly indicate the donation is coming from a DAF and include your contact information when a gift is made.

CAN I PASS MY DAF ON TO MY HEIRS?

Probably. Sponsors have their own guidelines, so if this is something you’re interested in, speak with a few different organizations to learn what your options are.

IF MY DAF ISN’T PASSED ON TO A SUCCESSOR, WHAT HAPPENS TO IT?

When creating your DAF, your sponsor will recommend you name any successors and/or select which charities you’d like to receive the remainder of your fund after your passing.

There are no tax rules about the amount of time money can sit in a DAF. However, many sponsors mandate regular giving. For example, you might be required to donate at least $50 every three years, and if your account is inactive for, say, five years, it could be liquidated and moved to another philanthropic fund. Typically, donors make six to seven gifts annually from a DAF.

OTHER BENEFITS:

GROW YOUR DONATIONS.

Similar to a 401(k) plan, you can invest your DAF. Your sponsor can advise you on your options.

SIMPLIFY YOUR CHARITABLE GIVING.

Rather than writing multiple checks to various charities throughout the year – and keeping track of the associated paperwork – the DAF handles that for you. Sponsoring organizations perform due diligence to ensure charities are eligible and reputable. And they’ll track your donations throughout the year and provide a single tax document.

MINIMIZE YOUR TAX BURDEN, MAXIMIZE YOUR DONATION.

DAFs accept donations of appreciated securities (held for more than one year) at fair market value. If you sold the securities on your own in order to make a donation, you’d have to pay capital gains tax. Not with a DAF!

ALSO WORTH NOTING…

A minimum donation level, which can range anywhere from $5,000 to $25,000 or more, is required to establish a DAF. You’ll also pay minimal administrative and investment fees. And gifts usually have a minimum amount, though it may be as little as $50. Inquire about these features when shopping for a sponsoring organization.

Donor-advised funds are an easy way to support Family Promise Essex and keep your philanthropic giving simple and streamlined! Check with your financial planner or a sponsoring organization to see if a DAF is right for you.