Renée C. Gage
For many, charitable giving is a meaningful way to support causes they care about and leave a lasting legacy. However, without a well-thought-out strategy, the impact of your donations may not reach their full potential. As a financial planner, I often recommend charitable giving strategies— especially using a donor-advised fund (DAF)—to help clients maximize the personal and financial benefits of their philanthropy. Today, I will explain what a donor-advised fund is and why you might want to consider establishing one.
What is a Donor-Advised Fund (DAF)?
A donor-advised fund (DAF) is an account established through a sponsoring charity, often an organization established to provide this planned giving vehicle. The donor makes an irrevocable gift to an account owned by that sponsoring organization and can recommend charitable disbursements to charities of their choice afterward.
How DAFs Work
Because the sponsoring organization of a DAF is a charity in and of itself, donors are eligible for an immediate upfront charitable deduction when they fund the account. Many DAF administrators do not require grants, so donors can grow these assets and make gifts to their favorite organizations over time. Assets also grow tax-free.
To ensure that gifts to the DAF sponsoring organization are completed for the purposes of the charitable deduction, the DAF sponsoring organization is not required to honor grant requests but, in almost every case, will—provided it can verify the organization's public charity status.
Key Benefits of Charitable Giving Strategies and DAFs
• Tax Efficiency: Charitable giving strategies, particularly through DAFs, offer significant tax advantages. By contributing cash, stocks, or other appreciated assets to a DAF, you can receive an immediate income tax deduction for the value of the donation.
• Simplified Giving: Managing charitable donations across multiple organizations can be complex. A DAF simplifies this by consolidating your giving into one account. You can contribute to your DAF once, take the tax deduction that year, and then distribute funds to various charities over time.
• Strategic Timing: DAFs allow you to separate the timing of your tax deduction from your charitable donations. This is particularly useful in high-income years, as you can make a large donation to your DAF and claim the full deduction, even if you plan to disburse the funds to charities over time gradually.
• Family Involvement: Many donors use DAFs to engage family members in philanthropy, creating a lasting tradition of giving. You can involve your children or heirs in the decision- making process, allowing them to recommend grants to charities and teach them the importance of giving back.
Is a Donor-Advised Fund Right for You?
While DAFs aren’t the right solution for every client, they offer a flexible, tax-efficient way to organize your charitable giving and maximize the impact of your contributions. A DAF might be an excellent option to explore if you're passionate about philanthropy and want to simplify the process while enjoying tax advantages.
If you think a DAF is right for you, you don’t have to go it alone. I can help you connect with DAF administrators who can help you realize your charitable vision. If you have questions and would like to learn more, schedule a call with me here.
About Johnny Garstka
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