During the last months of every year, people put more thought into giving, both because of the spirit of the holidays and the end of the fiscal year. There are many ways to give to charity, of course. For those who want to make their donations go as far as possible and have the most impact on their chosen charities, using donor-advised funds is an excellent strategy.
What Are Donor-Advised Funds?
A donor-advised fund (DAF) is a giving vehicle that is specifically designed to manage charitable donations for individuals, families, or organizations.
DAFs were codified as part of the Pension Protection Act of 2006. In recent years, donor-advised funds have become an increasingly popular choice for both families and organizations. According to a 2021 report by National Philanthropic Trust, there is currently $160 billion being held in DAFs waiting to be distributed.
How Do Donor-Advised Funds Work?
This type of charity vehicle is designed to benefit all parties, both the donor and the recipient. The donor opens an account in the fund and makes a deposit of cash, securities, or other types of financial assets. These assets then belong to the fund itself. The donor, however, has the ability to advise how these assets should be invested and distributed to the charities of the donor’s choice.
One advantage of donor-advised funds is that they set aside funds for charity, but they do not have to be immediately disbursed. The funds can be given over time as necessary or as the donor desires, either in their name or anonymously. The account holder is not required to meet distribution requirements and receives a tax deduction that can be claimed immediately or carried forward into the future.
Opening up a DAF account is simple. Using it allows for an easy transfer of appreciated securities to charity while bypassing paying capital-gains taxes.
Creating a Family Legacy
For many people, the most satisfying part of this charity vehicle is not financial, it’s personal. They have a commitment to giving, and they wish to pass it on to their children in a meaningful way that stresses their values and reinforces generosity. Some families involve their children in designing their charity process or distributing monies from the funds. You can absolutely tailor your donor-advised funds in a way that makes the best sense for your family.
Donor-advised funds are one vehicle that our clients use in their charitable giving. There are many others, including charitable remainder trusts and charitable lead trusts. If you would like assistance with your giving process or with creating a family legacy that will endure, Strategies Wealth Advisors can help you create a strategic, long-term plan to support the causes you are most passionate about.