How a DAF Can Help You Make Meaningful and Lasting Contributions to Charity
We’ve entered the season of giving, and it’s a time when many people are feeling motivated to give back to causes that are important to them. If you’re feeling philanthropic, be sure you’re using tools that can help you maximize your impact – as well as your own financial benefits. In this article, we’ll discuss donor-advised fund benefits and explore how you can use a DAF to help make a lasting impact with your charitable contributions.
What Is a Donor-Advised Fund?
A donor-advised fund (DAF) is a type of fund that allows you to deposit assets for charitable contributions and receive immediate tax deductions. It is a charitable giving account established at a public charity, and you can then direct those contributions to charities as often as you’d like to in the future. Because there are many donor-advised fund benefits, which we’ll dig into below, they’ve become a popular tool for philanthropists due to their simplicity and adaptability.
Donors frequently use DAFs to make individual or family gifts. However, they’re also gaining traction as a way to streamline workplace giving initiatives and support fundraising platforms.
How Does a Donor-Advised Fund Work?
A donor-advised fund can be established through the contribution of cash, securities, or other assets. It’s maintained and operated by a 501(c)(3) sponsoring organization established specifically for the purpose of acting as an administrator for DAFs.
Contributions are eligible for an immediate tax deduction in the year they are given. Donated assets are tax-free and can be directed as charitable gifts to any IRS-qualified charity from the account over time.
SEE ALSO: Giving Back: Tax-Savvy Charitable Giving Tips
Donor-Advised Fund Benefits
The impact of DAFs on various philanthropic pursuits is growing as more donors turn to DAFs to meet their giving goals.
Among the donor-advised fund benefits that make them such a popular choice are their simplicity of set-up, flexibility, potential tax savings, and ability to unlock powerful estate planning strategies.
Depending on the sponsoring organization, donors enjoy a good amount of flexibility regarding the types of assets that can be donated. These include:
- Cash
- Stocks, bonds, and mutual fund shares
- Private company stock
- Private Equity
- Hedge fund interests
- Restricted stock and pre-IPO shares
- Life insurance
- Cryptocurrency
- Real estate
- Oil and gas interests
- Collectibles
This flexibility allows donors to contribute highly appreciated assets, thereby eliminating the capital gains tax associated with the asset. Additionally, donors can claim the fair market value of the assets charitably donated in the tax year of the donation to offset taxes incurred elsewhere.
The assets in your DAF are invested according to your recommendations, and they can earn returns without being taxed. This can compound the charitable benefit, as there’s no requirement for when donated assets must be directed to a qualified charity. Consequently, contributions can be invested and allowed to grow in the markets, expanding the impact of future charitable gifting well beyond the original amount.
SEE ALSO: What You Need to Know About an Inherited IRA
Finally, no list of donor-advised fund benefits is complete without mentioning the role a DAF can play in empowering legacy and estate planning. Assets can be directed to a DAF in a will or included in a retirement plan, life insurance policy, or charitable trust, reducing or eliminating a possible estate tax burden for heirs.
Furthermore, a DAF can be broken up into multiple smaller funds to pass down to different successors so they can continue the legacy of giving and supporting charities in the future.
Determining Whether a Donor-Advised Fund Is Right for You
Although there are multiple donor-advised fund benefits, every person’s financial circumstances are unique. A DAF can be a desirable option if the following conditions apply:
- You have charitable inclinations and are looking to maximize your tax benefits
- You want to make a tax-deductible charitable contribution immediately but still need time to determine which charities you’d like to support with grant recommendations
- You’re considering a concentrated giving strategy with several years’ worth of contributions but would like to maintain gifting for specific charities over time
- You’re looking for a way to contribute non-cash complex or illiquid assets to charities that can’t take those types of donations
If you’re unsure whether a donor-advised fund is the right option for you, it can be helpful to seek the counsel of a seasoned financial professional. They can help you investigate donor-advised fund benefits that may be advantageous to you and decide whether to give to a DAF as part of a structured giving approach that maximizes your impact as a donor.
Final Thoughts on Donor-Advised Fund Benefits and the Power of the DAF
Donor-advised funds have become attractive options for people who want to make meaningful contributions to charity thanks to their simple setup requirements, potentially powerful tax savings, and investment flexibility.
With careful planning and a clear understanding of the donor-advised fund benefits that are widely available, individuals and families can leverage this increasingly popular charitable tool to make the most of their philanthropic efforts.
Are you wondering whether you should be taking advantage of these donor-advised fund benefits as part of your own charitable giving plan? At Aviance, we can help you explore the financial tools that will work best for your unique circumstances. Contact us today to schedule an introductory conversation with a member of our team.
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