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·Advantages of a Donor Advised Fund
Donor Advised Funds
Donor-Advised Funds or Designated Funds at Community Foundations and other charitable organizations, are accounts that remove assets from the donor's taxable estate. These funds allow donors to provide grants to their favorite charities over time as the donor decides. There are no set schedules as to which charity will receive what grant. By contributing assets to such a fund, the donor can claim a current-year charitable income-tax deduction.
The Donor Advised Fund, allows donors to:
- Simplify charitable giving.
- Secure the maximum tax benefits immediately for each charitable gift.
- Support numerous charities through one simple donation.
- Simplify tax reporting.
- Retain the flexibility of giving varying amounts or change charities over time.
- Involve spouses, children or associates in charitable giving.
- Give anonymous grants.
- Maintain a steady level of giving despite a fluctuating income level.
- Enjoy all of the positive aspects of a private foundation without the accompanying administrative burdens.
What are the advantages of a Donor Advised Fund relative to other charitable
vehicles?
Establishing a Donor Advised Fund is an inexpensive and efficient alternative to establishing a private foundation. There are no customized legal documents to draft and no associated legal fees that are inherent in setting up a private foundation. Also, there are no annual excise taxes (typically 2.5% of a private foundation's payout) associated with a Donor Advised Fund. In addition, a Donor Advised Fund will in most cases offer lower administrative fees and greater tax benefits relative to a private foundation.
Donors realize immediate tax benefits while giving to a designated charity when it meets their objectives. Donations to DAF are usually fully deductible in the tax year in which they are made (Donors should consult their tax advisors for the exact amount that can be deducted for tax purposes). Donors can also avoid capital gains taxes on appreciated assets donated to DAFs. Donors can donate appreciated securities directly to the DAF and realize their full fair market value as a charitable deduction without incurring any capital gains tax liability. If donors sell appreciated securities and then donate the proceeds to their designated charity, they will be liable for any associated capital gains taxes.
Donors can give more as their contributions grow. Investments in a Donor Advised Fund can grow over time, tax-free, which allows donors to give more to their charitable causes. Donors recommend investing their Account in one or more investment alternatives that offer varying levels of risk and potential return. Donors can establish a tradition of giving for their family by naming the account in honor of their family. Grants can be made either anonymously or with an acknowledgement that the donor recommended the grant. Donors can name a successor to take over their role as donor-advisor if they die or are otherwise incapacitated or they can recommend that their favorite charities receive the assets of the account outright.
A Donor Advised Fund allows donors to recommend, but not control, grants. Federal tax laws require that donations be irrevocable and unconditional in order for donors to receive the associated tax benefits. If donors continue to control the assets transferred to a Donor Advised Fund, there would be no "gift" for purposes of a tax deduction for charitable purposes. The Donor Advised Fund will allow donors to recommend the investment of donations and the disbursement of grants from the Account, all recommendations are subject to the approval of DAF's trustees. Individual tax liabilities vary. Charitable contributions are usually fully deductible (subject to certain limits relative to adjustable gross income) in the year in which they are made. However, every individual's tax situation is unique.
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