Tax Law & Charitable Giving – Donor Advised Fund

Another strategy to manage the benefits of charitable giving under new tax law is utilizing a Donor Advised Fund (DAF). 

Here’s how it works: A donor establishes a fund with a public charity who will administer the DAF.  The donor funds the account with irrevocable contributions of either cash or assets for the purpose of funding their current and future charitable gifts.  The donor then controls when and whom (must be a qualified charitable organization) receives the charitable distributions. 

There are several benefits to using a DAF. 

First, contributions into a DAF are tax deductible, but you don’t have to immediately distribute the funds.  This means that you can “prefund” your giving with large amounts that exceed the standard deduction and potentially invest that money inside the fund for future grants.  The account is in your fund’s name, you can select the custodian (for example, TD Ameritrade), and you can select the investment manager (for example, CGN).

Second, DAF’s are a great tool for someone who has highly appreciated assets, such as land or closely held stock.  The donor can gift the appreciated asset, receive a charitable deduction for the full market value of the asset, and not claim a large capital gain upon its sale.  The donor then controls the future distribution of the funds to the charities of their choice.

Third, DAF’s are a very efficient alternative to establishing a family foundation.  Donors can name successor donors (children) to control the future distributions, thereby truly leaving a family legacy.

With minimal administrative costs, Donor Advised Funds are great solutions for clients with charitable intent who are also trying to manage their taxes in a number of situations.