DAF, or “Donor Advised Funds”, are among the fastest-growing vehicles for philanthropic giving in the world. Compared to other charitable solutions, DAFs offer several advantages, including tax efficiencies, cost savings, and easier reporting and administration requirements.
DAF or Donor Advised Fund accounts are essentially specific financial accounts designed for the purpose of supporting charitable organizations. When you contribute securities, cash and other assets to a donor advised fund, you’re generally eligible to take a tax deduction straight away. This means that many companies use these products for tax-free growth opportunities.
You can even recommend grants for virtually all the IRS qualified public charities, which gives you a lot of freedom for managing your account. When you give money to non-profits, it’s important to ensure that your donations are making the biggest impact possible, both on your community, and your company. DAF solutions can be a great way to achieve your goals.
An Introduction to Donor Advised Funds
A donor-advised fund usually follows a specific structure. Individuals make initial donations into a specific fund they can top up whenever they choose. While the donations are irrevocable, the individual advises the institution where they want their cash to go.
The due diligence required to ensure that the charitable organisation is doing what it says remains with the DAF manager. Once this issue has been completed, the gift has been made on behalf of the DAF. Depending on the provider, other services might be provided too, including strategic planning, advisory services, and grant management.
One of the features that makes DAFs so attractive is how flexible they can be. The great thing about these investments is that you can fund them however you like, including through shares, assets, real-estate, vintage cars, rare books, and art. Share donations have become frequent in the past few years, which is usually a reflection of the stock market’s performance.
How a Donor-Advised Fund Works
Donor Advised funds are simpler than you’d think. They start when you donate stocks, cash, and non-publicly traded assets such as cryptocurrency, private business interests, and private company stock, to be eligible for tax deduction immediately. A contribution to the donor-advised fund can’t be retrieved, you have to commit the cash to the charity. You also don’t have the option to use the funds in any other way after the donation.
While you’re determining which charities you want to support, your donation can grow, making more money available for charities. Most sponsoring organizations have a variety of investment options available which you can recommend a specific amount of investment for your charitable dollars.
You’ll have the option to support just about any public charity certified by the IRS with recommendations from your donor advised fund. You can even support homeless shelters in your local town, religious institutions, and similar environments.
What are the Benefits of Donor Advised Funds?
Donating through donor advised funds can be a wonderful way to access tax-deductible opportunities for giving. These funds are flexible, reliable, and designed to suit your needs, with various options to choose from. Here are some of the most significant benefits of a donor advised fund.
Contribute a range of assets
Giving non-cash assets can be more efficient than giving cash through bank or credit cards. In traditional circumstances, however, it might be difficult for many charities to accept non-cash donations. Contributing assets outside of cash is simpler with a donor-advised fund. In some cases, you can even transfer stock directly from a brokerage account.
Assets range from cash equivalents like checks, cash positions, and wire transfers, to:
- Mutual fund shares
- Publicly traded securities
- Restricted stock
- Cryptocurrencies and bitcoin
- Private equity
- Hedge fund interests
Bigger tax benefits
Capital gains taxes and other expenses can really harm your charitable giving opportunities. At frontier leading DAF solutions, you can easily give money and get a range of immediate tax deduction options in return. Speaking to a financial advisor could also help you to determine if your fundraising is eligible for additional benefits.
If you donate cash, for instance, you can be eligible for income tax deductions of up to 60% of your gross income. Another option is to donate long-term appreciated securities to charities, rather than liquidating the asset. This helps nonprofit organizations, but it also improves your tax benefit. You can increase the amount you give to the private foundation and get tax benefits back for your allocation.
With assets, you’ll be eligible for income tax deductions that equate to the full fair value of your charitable gift or charitable donations within the market. Alternatively, you may be eligible for 30% of your gross income. You also eliminate capital gains expenses on appreciated assets with DAF direct solutions, as long as they’ve been held for more than a year.
A donor-advised fund is an excellent way to reduce the pressure on keeping track of every time you donate to a national philanthropic trust. You can use DAF trucks, fund sponsors, and grant making tools to log into your account and recommend a grant to IRS qualified charities.
Once you’ve funded your account, you can even recommend investment strategies that make sense to you. There are countless professionals who can also work with you to ensure you’re getting the most out of the money you spend. Experts are available to offer guidance on everything from dissolved air flotation to high fidelity charitable investments, Dutch and New York investments, and more.
You can even incorporate some of your charitable contributions into your estate planning, by making bequests in your will to the fund sponsor or making the sponsor one of the beneficiaries of your retirement or life insurance plans – if that’s part of your philanthropic goals. Many sponsoring organizations will provide FAQs and guidance for those who need help planning a succession strategy for their donor-advised fund. This allows users to pass the remaining funds in an account onto specific charities or heirs.
Supporting Charities with a Donor-Advised Fund
A donor-advised fund gives you the opportunity to support IRS qualified public charities using grant recommendations within that fund. The public charity that sponsors your account will need to ensure that the funds are going to an IRS-qualified charity and will also be used for charitable purposes.
You can also choose whether you want to recommend anonymous grants to charity, or provide acknowledgement contact information with recommendations. You can also specify a use, purpose, or campaign for your grant recommendation, though you can’t fulfil legally binding pledges using one of these DAF solutions. You can make grant recommendations in honor of loved ones too.
However, you cannot recommend grants that may lead to personal benefits, such as better school tuition for a child, or tickets to an event hosted by a charity you want to attend.
A donor advised fund is different from a private foundation, though they’re both charitable vehicles which help donors to achieve their philanthropic goals. Private foundations are separate legal entities established by a family, individual, or corporation, and are subject to tighter tax laws and regulations.