Which Clients Should Open Donor-Advised Funds

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For many reasons, the popularity of donor-advised funds (DAFs) continues to grow among clients and their trusted advisors. Clients feel DAFs allow them to maximize their support for charities, advisors understand and promote DAF advantages to clients, and charities are pleased to receive more and larger grants from their donors who have established DAF accounts.

DAFs are simple to establish and use, and they enable donors to contribute simple and larger and more complex assets, such as privately held stock that most charities are unable to accept. As a result, DAF donors are typically more generous in their grants than they would be if clients donated directly to the charities.

This was especially true during the past year, as donors substantially increased their giving from their DAF accounts in response to the urgent need that existed here and abroad. While many DAF donors sent grants from their previously established DAF accounts, others opened and funded new accounts and then send out grants afterwards. The COVID pandemic caused some clients to re-evaluate their charitable and other priorities.

Some clients who have recently established DAF accounts with the assistance and encouragement of their financial, legal, tax advisors include those who:

  1. Sold or are selling their businesses;
  1. Owned highly appreciated assets they donated instead of selling and paying significant capital gains tax;
  1. Had an increase in wealth, realized that they had plenty for themselves and heirs, and funded their DAF accounts substantially so they had plenty to give away now and in the future;
  1. Were personally impacted by the pandemic or witnessed the impact upon others who were less fortunate;
  1. Decided to retire within the next several years, so they made large donations to their DAF while working and received a significant deduction; as a result, they are in a better position to make grants during retirement while their income will be less;
  2. Wanted to involve their families in charitable giving and instill charitable values in them;