If you are interested in making charitable contributions without the complexity of establishing a private foundation or a charitable trust, you may consider giving through a donor-advised fund (DAF).
What is a Donor Advised Fund?
Essentially, a DAF is an investment account that has been committed to charitable purposes. DAFs are commonly established through financial institutions, however, community foundations may also establish DAFs. If you have an established relationship with an investment manager, he or she may be able to assist you in establishing a DAF. Alternatively, if you do not have a financial advisor, many sponsoring organizations will not only establish, but also manage DAFs.
After contributing funds to a DAF, the contributor makes recommendations about which charities should be the recipient of such funds. Although not binding, these recommendations are generally followed when funds are distributed from the DAF.
Why are Donor Advised Funds Beneficial?
DAFs are advantageous for donors with varying charitable goals because donors can recommend numerous recipient charities, change the charitable beneficiaries of their DAF over time, or focus their recommendations on a single charitable purpose.
Contributions to DAFs are also generally advantageous from a tax perspective. If a taxpayer makes gifts to the DAF during his or her life, the gifts are often deductible on the taxpayer’s income tax return. The value of these lifetime gifts is also generally removed from the taxpayer’s total taxable estate.
Moreover, if the taxpayer contributes appreciated assets to a DAF (such as stock), then he or she may avoid capital gains tax that would have been due if the stock was sold. If a taxpayer instead makes gifts to a DAF at his or her death (i.e., in his or her Will), then the gift generally results in an estate tax charitable deduction.
Overall, DAFs are a flexible and inexpensive way for donors to make charitable gifts. For more information regarding DAFs, charitable giving, or estate planning, please contact Ryan L. Montgomery, Kara Kalenius Novak, or Kaitlyn K. Perez.