Giving Compass' Take:
- Douglas MacGray, writing for Philanthropy Daily, explores the benefits and evolution of donor-advised funds.
- What flexibility can donor-advised funds provide for individual donors?
- Read about the differences between donor-advised funds and private foundations.
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Every DAF has a sponsoring organization that manages it. There are many, and they range from large financial institutions such as Fidelity and Schwab to more narrowly focused entities such as The Signatry, DonorsTrust, Bradley Impact Fund, or the Jewish Communal Fund.
These sponsoring organizations create a nonprofit entity, generally maintained and operated under section 501(c)(3) of the IRS tax code. As a result, when you make a deposit into a DAF, you are making an immediate donation to a tax-deductible charitable entity.
When you create a DAF at one of these sponsoring organizations, you get to name the fund (e.g., “The Our Family Giving Fund”), and you can deposit money when it is most convenient for you. Any time you make a deposit, it becomes a charitable donation for that year.
Like other investment accounts, you will get statements and can have online access to see how your DAF account is doing. However, once the money is deposited into the DAF, it is technically and legally no longer yours. You have given up legal control over the property.
There are numerous benefits to using a DAF, here are a few that you might consider before choosing to make use of one.
First, you can obtain some tax control. Of course, you should review any tax strategies with your tax professional. If you are having a year with outsized income because your company got sold, you exercised some stock options, or you received a nice bonus, and you want to get a bigger deduction, it may be worth considering a DAF.
You can also potentially avoid paying capital gains taxes if you put assets into the DAF. If you have stock with low basis that you have owned for a year or more, and you don’t want to sell because of the capital gains tax, then gift some of that low-basis stock directly to the DAF. The DAF can sell it immediately upon receipt, but no capital gains tax will be triggered. Also, you will likely be able to take a tax deduction for the full, fair market value of the stock at the time of the gift.
A third benefit of DAFs is that your charitable gifts can be made anonymously. Of course, they don’t need to be, but if you want to make an anonymous gift, a DAF is a great way to do so.
Read the full article about donor-advised funds by Douglas MacGray at Philanthropy Daily.