The Power of Donor-Advised Funds

The Power of Donor-Advised Funds

March 01, 2024

Donor-advised funds (DAFs) have emerged as a versatile tool for individuals and families to support the causes they care about on an ongoing basis. They have become increasingly popular in recent years, due to their flexibility, tax efficiency, and simplicity,

A donor-advised fund is established by a public charity to manage charitable donations on behalf of individual donors.  Donors contribute to the fund, receive an immediate tax deduction, and then recommend grants to qualified nonprofits over time.


  • Contributions: Donors can contribute cash, securities, or other assets to the DAF. Because they receive an immediate tax deduction, they can plan their contributions whenever it's most advantageous. This may be helpful to offset capital gains or higher income in a particular tax year. In addition, contributing low cost-basis assets allows donors to avoid potential capital gain taxes.

 

  • Investments: The assets within the DAF are invested for potential growth. Most DAFs provide donors with a menu of investment choices to select from. This allows donors to access professional management and maximize the impact of their contributions over time.

 

  • Grantmaking: Donors can recommend grants to qualified charities on their own timeline. This enables them to build a strategic giving plan that aligns with their personal priorities. It even allows families to engage younger members in charitable activities and pass down the value of giving. Donors can also choose to remain anonymous if privacy is desired.

 

  • Recordkeeping: The sponsoring charity handles all administrative tasks, including recordkeeping, tax reporting, and compliance. This reduces paperwork and streamlines the giving process.

 

While donor-advised funds offer numerous benefits, it's essential for donors to approach their use thoughtfully and responsibly.  Donors should research and evaluate sponsoring charities to ensure they provide robust investment and grantmaking options.  While DAFs offer privacy for donors, having transparency in grantmaking practices is essential.

Donor-advised funds have made philanthropy more accessible, efficient, and impactful for individuals and families of all means. By harnessing the power of DAFs, donors can leverage tax advantages, streamline administration, and make a lasting difference, effecting positive change.