What's a DAF?
A Strategic Approach to Tax-Efficient Charitable Giving
To cut right to the chase, a Donor Advised Fund (or “DAF” for short) is an investment account designed specifically for charitable giving. In addition to providing us with yet another fun financial acronym, a DAF allows you to:
- make a charitable donation
- receive an immediate tax deduction
- recommend grants from the fund to your preferred charities over time
And while these accounts are nothing new (the very first DAFs date all the way back in 1931), their use in recent years has skyrocketed.
Immediate Tax Benefits and Sustained Impact
But just why are so many more people using DAFs to fund their charitable goals? One of the primary attractions of a Donor Advised Fund is the potential for immediate tax benefits. When you contribute cash, securities, or other assets to a DAF, you are generally eligible to receive an immediate tax deduction. This deduction can be particularly valuable if you are experiencing a year with unusually high income, as it provides a method to reduce taxable income through charitable contributions.
Moreover, the assets in a DAF can be invested and grow tax-free, which potentially increases the amount available for future charitable grants. This growth opportunity not only amplifies your ability to support charities but also extends the impact of your original donation.
While these tax benefits have always been a staple of DAFs, they became even more valuable after the ‘Tax Cuts and Jobs Act’ became law in 2018. This, along with increased availability to individual investors, has led to the dramatic increase in the use of DAFs we see today.
Flexibility and Control
DAFs offer remarkable flexibility. Unlike direct donations to a charity, a DAF gives you the ability to time your grants according to when you feel they will be most impactful. Whether you want to respond to an immediate crisis or contribute to ongoing initiatives, you can distribute funds at a pace that aligns with your philanthropic strategy and personal convictions.
Furthermore, DAFs can be a family affair. They offer an excellent platform for involving family members in philanthropy, helping to instill charitable values, and allowing for a collaborative approach to giving. By engaging family members in decisions about grant recommendations, you can use the DAF as a tool for teaching the next generation about the importance of generosity and community support.
Is a DAF Right for You?
While DAFs provide numerous benefits, they are best utilized as part of a broader financial, tax, and estate planning strategy (for instance, integrating a DAF with estate planning can further enhance the tax benefits while ensuring that your philanthropic impact endures beyond your lifetime). If you have any additional questions about Donor Advised Funds or how they might fit into your own charitable strategy, please don’t hesitate to reach out to me or any member of your Lee Stoerzinger team!
Investing involves risk. No investment strategy can guarantee positive results. Loss, including loss of principal, may occur. Material discussed is meant to provide general information and it is not to be construed as specific investment, tax or legal advice. Keep in mind that current and historical facts may not be indicative of future results. Diversification is an investment strategy that can help manage risk within a portfolio, but it does not guarantee profits or protect against loss in declining markets.
This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. (C) Twenty Over Ten
