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The first time I heard of a Donor Advised Fund (DAF), I imagined a complex, high-maintenance charitable fund that would cost an arm and a leg to establish and maintain. I was mistaken. You don’t need a fortune to channel your giving through a DAF. These funds are designed for everyday people who want to make charitable donations in a way that offers tax efficiency, flexibility, and choices.
A DAF is essentially a personal charitable savings account that is maintained on your behalf by an established public charity. You can deposit cash, stock, or other assets into the account, receive a current-year tax deduction, and distribute those dollars to your favorite charities over time. Here are three reasons why DAFs are so appealing:
- Tax Advantages
With Congress increasing the standard deduction in 2017, many donors found that their charitable contributions no longer provided a tax benefit. Giving through a DAF allows you to bunch multiple years of contributions into a single year, so the donations plus other deductions exceed the standard deduction. This restores much of the tax benefits of your charitable giving.
A DAF also simplifies your tax record-keeping. You make one gift to the fund and only have to provide one donation receipt to the IRS. Then you can direct the fund manager to distribute your gifts to as many charities as you choose to support.
DAFs also allow donors to donate appreciated securities and avoid capital gains taxes, making more money available for charity.
- Flexibility
If you give several years’ worth of donations to the DAF at once, those funds can then be distributed any time. This allows you to maintain a steady level of annual giving that charities can count on. You can give anonymously and can easily make changes in your giving. You also have time to research new charities before you decide to support them.
- Estate Planning Convenience.
Instead of naming specific charities, you can designate the DAF in your will or trust as a beneficiary. If you want to exclude or include a charity in the future, all that’s required is a simple amendment to your giving plan with the DAF rather than rewriting or amending your estate planning documents.
If you would like to set aside a sum of money for a charity that can generate an annual income in perpetuity, but establishing a foundation or charitable trust is impractical, you can make such a long-term gift through a DAF.
