Tuesday, April 9, 2019
By Molly Norton
Donor-advised funds (DAF) are the fastest growing philanthropic tool today, accounting for more than 3 percent of all giving in the United States. They are a simple, flexible, and effective way to easily receive the tax deduction you need while allowing you time to figure out your charitable giving strategy.
How Donor-Advised Funds Work
- You contribute to a DAF, which has public charity tax status, so you receive the tax deduction right away. At institutions like Fidelity Charitable, accounts can be started with just a $5,000 initial donation, require no minimum balance, and can be opened in about a day if you’re donating cash. Community Foundations often require a higher starting balance and charge slightly higher administration fees, but include services that connect donors more closely with their local non-profit and philanthropic community.
- Your irrevocable contribution can include cash, appreciated assets, real estate, cryptocurrency, and retirement accounts, and can be invested for tax-free, potential growth (non-cash donations may take longer to process).
- Assign your DAF a name and identify any successors or beneficiaries to the account.
- Designate funds from your account to any of thousands of qualified non-profits. If you have charities you already support, you can begin granting right away. If you need time to figure out where you want the money to go, that’s fine as well.
While donor-advised funds have been criticized because some people take a long time to distribute money to non-profits once the tax deduction is received, DAFs offer other advantages that benefit donors and grantees:
- You can set up recurring monthly or annual donations, providing consistent support for non-profits and freeing you from having to remember to write a check each month.
- With some institutions, you can gift money from your DAF to a friend or family member for the holidays or to celebrate a special occasion, allowing them to select their non-profit(s) of choice to receive the funds.
- Some philanthropists are setting up DAFs in lieu of private foundations—which are more of an administrative burden—because DAFs have no annual distribution requirements and no required reporting. Donors can still create a giving philosophy, establish priority giving areas, and involve family members without the regulatory requirements of a private foundation.
If you want to learn more about donor-advised funds, or would like advice on how to make sure your philanthropic donations are creating the impact you want them to, reach out to our team today.
Want tips on how to evaluate effective non-profits? Read our Giving Tuesday guide.
Molly Norton is the philanthropic advisor at Brighton Jones.
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