Understanding Donor-Advised Funds
A donor-advised fund is a charitable giving vehicle that allows donors to make irrevocable contributions of assets—such as cash, securities, or other appreciated assets—into a specialized fund. Donors can then direct those contributions to other qualified charitable organizations in the future and invest the funds for growth in the meantime. By allowing a single, deductible donation that can subsequently be distributed to multiple charities, DAFs empower donors to support various causes over time with fewer administrative headaches than with other charitable strategies.Benefits of Donor-Advised Funds
In addition to administrative simplicity, DAFs offer multiple other benefits.Tax Efficiency
One of the primary advantages of donor-advised funds lies in their tax efficiency. By contributing to a DAF, donors receive an immediate tax deduction, allowing them to maximize the impact of their giving while minimizing their tax liability. Further, donating appreciated non-cash assets can potentially eliminate the capital gains tax that the asset sale would incur. This could increase the amount available for charity by up to 20% (instead of selling an asset, paying taxes, and contributing the remainder).Donors can also “bunch” contributions by contributing more to a DAF in years where the tax savings are best and foregoing contributions in low-tax years. While donors will get the full tax benefit in one year, they’ll maintain the flexibility to distribute grants to their favorite charities over multiple years. Finally, donations to a donor-advised fund are irrevocable. Since those assets no longer count toward an estate’s value, they aren’t subject to estate taxes.