In recent years, Donor-Advised Funds (DAFs) have become a popular method of donating to philanthropic causes. In fact, according to the National Philanthropic Trust 2023 DAF report, there are nearly two million DAF accounts in the U.S. in 2022. If you are hoping to leave behind a charitable legacy and are looking for a long-term way to donate to causes close to your heart, opening a DAF may be the right giving option for you.
What is a DAF?
Donor-Advised Funds are giving accounts set up for 501(c)(3) organizations. When donors establish an account and contributions are made, the sponsoring organization has legal control over the account, but the donor does have the ability to advise the organization on how the funds will be used. In some instances, sponsoring organizations will also allow a donor’s financial professional to make contributions on their client’s behalf. Many choose to use DAFs because they can simplify charitable giving and offer important tax advantages.
How Does a DAF Work?
When you open a DAF with a sponsoring organization, you first contribute an irrevocable lump sum to the account. It’s important to note that some DAFs require a set-up, termination or an annual administration fee, so prior to opening a DAF, ask about any costs you will acquire as a donor. Unlike what you may consider to be traditional charitable donations, DAFs allow you to give diverse assets, not just cash. Assets you can contribute to a DAF can include mutual funds, stocks, bonds, real estate, and cash gifts.
Once you make your donation to the DAF, the assets are able to be invested and are allowed to grow over time. When the time comes for the contributions in your account to be used within the organization, you’ll have the opportunity to share advice on how those assets should be spent.
Choosing a DAF
There are several factors you should consider when selecting a sponsoring organization and DAF that’s right for you. A few questions to keep in mind include:
- What assets are eligible for contribution?
- What are the investment options?
- What annual or set-up fees exist for the account?
- What succession policies are in place?
- What can donors do to select and manage assets?
As with any kind of charitable giving, it’s crucial you complete diligent research prior to making donations or opening an account. DAFs are considered to be a secure way to give, but it’s important to remain vigilant when you are weighing your options, and to ask the right questions to determine where you will open a DAF.
Benefits of a DAF
The most important benefit of establishing a DAF is that as a donor, you are able to support an organization whose mission you care about. DAFs ultimately offer a great way to make a long-standing impact — even just a one-time donation is able to be used by the charity over time. For donors, giving to a DAF provides the added benefit of an immediate tax deduction. Since sponsoring organizations are public charities, contributions made to a DAF are considered tax-deductible charitable contributions. The amount deducted depends on certain factors like the type of assets you have donated. Even after your passing, you can continue contributing to a DAF by designating a successor who can keep making donations on your behalf, ensuring you will have a charitable legacy even after you have passed.
Give with a Professional
At Trust Point, our professionals can offer a variety of charitable giving strategies. To help you reach your philanthropic goals, our team will make recommendations for gifting, help you manage your contributions, and establish trusts and other giving accounts. To learn more about our services or to schedule an appointment, contact one of our professionals or call 800-658-9474.
