Donor-Advised Funds Offer Many Tax Advantages

Donor-advised funds (DAF) have grown in popularity during the last 20 years, and for good reason.  DAF’s are a simple, low-cost way to support the charities of your choice and take advantage of the current tax benefits.  This can be done by making direct contributions to the charities you choose, but a DAF offers additional benefits:

  • Less administrative work. DAF’s handle the administrative tasks of making the contributions.  You need only open a DAF with a sponsoring organization and write one check to set it up.  The DAF will handle all of the paperwork for the individual contributions that you choose to make with those funds.  In addition, if you transfer appreciated assets to the DAF, the organization will handle the sale of the assets and transfer the funds to your designated charity.
  • Up-front tax deductions. The donor receives an immediate tax deduction when the funds are deposited into the DAF, but can make recommendations for grants to charities over time.
  • Anonymity. The donor can remain completely anonymous by notifying the DAF not to disclose this information.
  • Input on charitable organizations. In many cases, the donor can continue to make recommendations on the investment of the funds in the DAF until contributed to the charities.
  • No minimum contribution requirement. There is no minimum amount that must be paid out each year, as in private foundations.
  • Easier due diligence. The DAF will verify the charitable status of an organization to which you choose to make a grant.  In addition, many DAF’s have information on the charitable activities carried out by the various charitable organizations, so you can make sure these activities are in line with your values.

As with a direct charitable contribution, you can receive a double tax benefit by contributing appreciated assets to a DAF.  You avoid the capital gains tax on the sale of the appreciated asset and receive a tax deduction for the full fair-market value of that asset, thereby decreasing your net cost of the charitable contribution.

DAF’s are offered by many public charities, financial services institutions (such as Vanguard and Fidelity), community organizations, and educational institutions.  Generally, there is a minimum contribution to set up a DAF, but it can be quite low (for example, $5,000) and fees are usually very reasonable.

If you are interested in setting up a donor-advised fund, contact one of the professionals in Kreischer Miller’s Tax Strategies group for more information and assistance with this worthy endeavor.

Susan P. Stutzman can be reached at Email or 215.441.4600.