Donor-Advised Funds

Donor-advised funds (DAFs) have become increasingly popular among individuals and families seeking to fulfill their charitable giving and tax planning goals due to their flexibility and ease of implementation. A DAF is a charitable investment account that allows you to make donations to your fund, receive an immediate tax-deduction, and then make grants from the fund to the charities you support, on your schedule. Below are five ways donor-advised funds can help you pursue your charitable giving goals:

1. Streamline your charitable giving. DAFs enable donors to centralize and manage their giving strategies from a single convenient account, making it easy to document donations at tax time.
2. Maintain flexibility and control. DAFs are highly flexible, allowing you to determine the amount and frequency of your contributions, how funds are invested, the number of 501(c)(3) charitable organizations you choose to support, and when you want to make grants to one or more organizations.
3. Donate a broad range of assets. You can contribute cash, publicly traded securities (such as appreciated stock, bonds, and mutual funds), real estate and other tangible assets, and even business interests to your fund. While many charitable organizations are unable to accept complex assets, such as real estate or property, they are able to accept grants from your fund. In addition, you do not incur capital gains tax on gifts of appreciated assets to the fund.
4. Maximize your impact. While donations to the fund are irrevocable, they can grow tax-free, helping to further increase your philanthropic impact over time.
5. Enjoy generous tax benefits. If you itemize on your tax return, you may be eligible to deduct cash donations made via check or wire transfer of up to 60% of your adjusted gross income (AGI). Contributions of appreciated assets and property are generally capped at 30% of AGI if they're made to qualifying organizations. In both cases, donors enjoy a five-year carry-forward deduction on gifts that exceed AGI limits.¹

If you normally take the standard deduction, you may want to consider “bunching” several years of donations into the current year if that would enable you to itemize and take the deduction this year. You could then make grants to the charitable organizations you support immediately or over time, based on your preference. Be sure to meet with your tax and financial professionals before implementing this or other tax strategies.

To learn more about donor-advised funds or other tax-smart charitable giving strategies, contact the office now to schedule a time to talk or schedule a time on our calendar at www.calendly.com/kfn. 

^{1)“Publication 526 (2023), Charitable Contributions.” IRS.gov, 9 SEP 2024, https://www.irs.gov/publications/p526#en_US_2023_publink1000229802.}

Generally, a donor advised fund is a separately identified fund or account that is maintained and operated by a section 501(c)(3) organization, which is called a sponsoring organization. Each account is composed of contributions made by individual donors. Once the donor makes the contribution, the organization has legal control over it. However, the donor, or the donor's representative, retains advisory privileges with respect to the distribution of funds and the investment of assets in the account. Donors take a tax deduction for all contributions at the time they are made, even though the money may not be dispersed to a charity until much later.