Be Smart About Giving:
Benefits of a Donor Advised Fund
With the passage of the Trump tax act in December 2017, and with its doubling of the standard deduction, many donors found themselves discontinuing itemization on their tax returns. This impacted the tax savings they had previously experienced through their philanthropic gifts. The new mantra was to combine several years of charitable giving into one year which might make itemizing beneficial for the donor. For many of these donors, establishing a Donor Advised Fund (DAF) may be the best vehicle for merging your philanthropic giving in a way that may also produce tax savings.
One of the strongest features of the DAF is that funding can be done in one year, hopefully creating a charitable deduction, while the actual disbursements to charities can be spread out over several years. For example, if you received a bump in income, a large bonus, or the sale of a significant asset, you may want to use a part of the excess income to fund a DAF. Another great feature is disbursements from your DAF can identify you as the donor, or if you prefer anonymity, your information can remain confidential. From a record keeping standpoint, using a DAF means you automatically have a listing of all philanthropic giving at year-end. If you want to use your DAF to cover an existing pledge, you’ll want to work closely with the charity and your DAF administrator to ensure you use the right documents.
DAF’s vary widely in the initial minimum monetary requirement for establishing an account. While some require as little as $5,000, others can have an initial requirement of $100,000 or more. DAF’s are available through mutual funds, investment firms, and community foundations, to name just a few institutional groups. Those requiring larger initial sums often market their expertise in helping the donor make charitable decisions. They may also state they have a better investment return, but one would be wise to compare using a 10 to 15-year return history. From a tax deduction limit, cash gifts to a DAF are deductible up to 60% of adjusted gross income. If using appreciate stock or real property to fund the DAFs, the limit is 30% of AGI. But on the other hand, the donor is escaping any long-term capital gain tax on the contributed stock.
We have an overview of Donor Advised Funds that may be helpful to you if you are considering establishing one. If you would like to receive a copy, please email: anneK@northwestharvest.org or call 206.390.6094.