What Are Donor Advised Funds (DAF)?
According to the IRS a donor advised fund is a separate identified fund or account that is maintained and operated by a section 501©(3) organization- sponsoring organization. The donor owns the account and grants the funds to the non-profit organization to manage. DAF’s allow the nonprofit organization to use the allotted funding as they see fit over a long period of time, including being used as a safety net. The funds continue to appreciate after being granted to the nonprofit thus allowing the charity to receive more funds overtime.
What Are the Benefits of a DAF to the Donor
The primary benefit of a donor advised fund (DAF) is that it allows someone to donate assets to a charity today and receive a tax deduction now– even though the actual funds may not be granted to the final charity until some point in the future.
Given the potential of a DAF to separate the timing of the contribution and tax deduction, the most common strategy for using a DAF is to “front load” charitable contributions in a high-income year. The donor can maximize the value of the tax deduction in a high-income year but retain the flexibility to decide in the future to which charities the funds will actually go.
Fidelity Charitable, Vanguard Charitable and Schwab Charitable are the most common used national donor advised funds.
Some of the reasons a donor might want to set up a DAF besides the tax benefit in a high-income year are:
- The desire to leave a generous legacy in retirement years
- Donor wants to give back excess income
- Ability to make continuous giving throughout retirement
- The ability to give appreciated securities (some facilitate Bit Coin donations)
- Donate on an anonymous basis
- Create an “In Memoriam” Fund
- Teaching Charitable Giving to Children
- Leave a Family Legacy Vehicle
- The ability to grow their donation tax-free
- Take advantage of the tax benefits in the case of a windfall or high bonus year
LymeDisease.org is a nationally registered 501©(3). Our EIN is 68-0214101. If you have any questions, please contact Carolyn Degnan, COO at firstname.lastname@example.org or call the donor phone line at 510-807-0133.
The above information is a quick overview of Donor Advised Funds but is not meant to be tax advise. Please contact your financial advisor to see if a DAF works for your financial situation. You can also visit the websites of some of the top DAF providers to assess their fee structure, minimum amount to start a DAF, etc.