What is a Donor Advised Fund & how does it work?
Have you considered establishing a Donor Advised Fund (DAF) at the Community Foundation?
You probably know that a Donor Advised Fund gives you tax advantages. Each time you contribute money or other assets to the fund, you receive an immediate income tax deduction. But that’s not all a DAF offers! It’s also a flexible planning tool that allows you to be involved in the grant recommendation process.
Here are a few reasons to choose a DAF:
- After you establish a Donor Advised Fund, you can contribute to it as often as you’d like.
- We hold and administer the fund and handle all the paperwork.
- When you’re ready, you can recommend grants to your favorite, qualifying charities. You choose the amount, whether you want follow-up reporting and if you’d like remain anonymous to the grantee.
The advantages don’t end there! You can also name a successor advisor to your DAF. Your children or grandchildren can assume grant recommendation rights when you pass away, enabling them to perpetuate your charitable legacy.
What can I contribute to a Donor Advised Fund? How do I recommend a grant?
A DAF can accept a variety of assets:
- Stocks, bonds and mutual fund shares
- Real estate
- Life insurance
- And more
When you’re ready, you can recommend a grant to a qualifying charity. That includes a plethora of religious, educational, and missions organizations located anywhere in the nation. The Community Foundation will ensure your recommendation meets all legal qualifications. Then, we’ll deliver the grant to the organization.
If you choose to make the grant anonymous, we’ll honor that request. If you would like the charity to know your name and be able to thank you, we’ll do that, instead. It’s all part of the flexibility of DAF funds.
Can I personalize my DAF account?
Yes! You can call the fund anything you like, name successive fund advisors, and incorporate the fund into your legacy plan. You decide how you’d like the funds to be distributed after your lifetime. In the meantime, you can recommend one-time or reoccurring grants to your charities of choice.
In a recent interview, Community Foundation donors Kevin and Amy Deardorff shared how a Donor Advised Fund works for them.
Q: How do you decide what grants to recommend?
A: We certainly each have our favorite nonprofits, typically because of prior involvement with those organizations, that we support regularly. We also want to support agencies that benefit from the volunteer efforts or provide to needs of our community, which can change over time. A major benefit of the Donor Advised Fund is the flexibility to make those decisions at any time and at various levels.
Q: Gifts to a Donor Advised Fund can be cash, stocks, real estate, crops – any number of ways to give. How important is it to you that you have flexibility with the types of gifts you can make to this fund?
A: That was very important to us, specifically because we wanted contribute to our fund by donating stock from my former employer, which would have had a very low tax basis and thus generated significant tax liability if we had to sell. And we were also able to save taxes by having the flexibility to choose to donate in a year that taxable income was higher than normal. It also allowed us to better diversify our asset base. The same advantages can benefit others as their personal situation applies, such as farmers being able to reduce taxable income by donation of crops. Again, flexibility is so important! And it doesn’t require much to establish, both in effort and due to the relatively low minimum donation.
Are DAFs popular nationwide?
In their 2022 Donor Advised Fund report, the National Philanthropic Trust confirmed that there are more than 1.2 million DAF accounts in the United States. From those funds, nearly $46 billion was given to charity in 2021. “We also observed that donors who have DAFs can and do respond quickly and generously in the fact of pressing challenges and serve as an important role in sustained giving,” the report noted.
If you choose to establish a DAF with the Community Foundation, you’ll be in good company. Reach out today to learn more.