Donor Advised Funds: Smarter way to give
Donor Advised Funds (DAFs) have recently gained significant popularity as a versatile and tax-efficient vehicle for charitable giving. According to Fidelity Charitable, their 322,000 donors made 2023 a record-breaking year, totaling $11.8 billion donated to charities worldwide. However, many still question what DAFs are and how they work. I must admit that this blog comes at the tail-end of my own research into it because it is also new to me. I hope to share some of what I have learned about the fundamentals of donor-advised funds, the benefits, and how they can empower individuals to make a positive impact through philanthropy.
What are Donor Advised Funds? Donor Advised Funds are philanthropic vehicles established by public charities to manage charitable donations on behalf of individuals, families, or organizations. Donors contribute assets—such as cash, stocks, or real estate—to their DAF account and receive an immediate tax deduction for the charitable contribution and then the funds can be invested for tax-free growth until it is granted out. Once the assets are in the DAF, donors can recommend grants to qualified charities over time, while the sponsoring organization administers the funds and ensures compliance with IRS regulations.
Benefits of Donor Advised Funds:
Tax Efficiency: Donors receive an immediate tax deduction for contributions to their DAF, even if the funds are not distributed to charities immediately. This allows donors to maximize their charitable impact while minimizing their tax liability.
Giving More, Paying Less: The donor's funds can be invested for tax-free growth. Using a DAF, donors would be more likely to give to charity and pay less in taxes. This strategy can often allow donors to give more than 20% more to the causes they care about.
Simplified Giving: DAFs offer a streamlined and efficient way to manage charitable donations, consolidating contributions into a single account and providing a centralized platform for grantmaking.
Flexibility: Donors can contribute various assets to their DAF, including appreciated securities, which may offer additional tax benefits. They can also recommend grants to qualified charities at their own pace, allowing for strategic and thoughtful philanthropy.
Legacy Planning: DAFs can serve as a tool for long-term charitable giving and legacy planning, enabling donors to involve their family members in philanthropy and pass on their values to future generations.
Privacy: Donors can choose to remain anonymous when making grants from their DAF, providing a level of privacy and discretion in their charitable giving.
Donor Advised Funds offer a flexible, tax-efficient, and impactful way to support charitable causes and make a difference in the world. By understanding the benefits, considerations, and strategic opportunities associated with DAFs, individuals and families can leverage these philanthropic vehicles to amplify their giving and create lasting change in their communities and beyond. Our non-profit, Changing Tomorrow, is a 501c(3) and qualified to receive DAF donations. We have DAF option on our website if you would like to get involved and help create positive change.
We need more Change Makers and Action-Takers