Donor-Advised Funds for Flexible Charitable Giving

December 11, 2017  | By Kevin Smith

Donor-Advised Fund (DAF) is a convenient way make charitable gifts over a long period of time. Here’s how it works:

1) Set up a DAF investment account.

2) Fund the account with a charitable donation and enjoy the tax benefit in the year of the donation.

3) The funds remain in the account and you can take your time deciding which charitable organization(s) you want to help fund. Meanwhile, you can invest the account so the funds may grow.

It is similar to a private foundation but requires less money, time, legal assistance and administration to establish and maintain. Technically, a DAF is an agreement between a donor and a host organization (the fund) that gives the donor the right to advise the fund on how the donor’s contribution will be invested and how grants to charity will be made.

Some key features:

  • Initial contribution requirements are as little as $10,000.
  • Accounts can be personalized or donors can give anonymously.
  • No minimum distribution requirements.
  • Contributions can be invested, allowing donors to potentially give away more money than what was originally contributed.

Donor-advised funds are also a convenient way to track charitable contributions. The fund serves as the central depository for all charitable contributions and eliminates the need to track individual gift receipts to multiple charities.

Situations where a Donor-Advised Fund may be appropriate:

  • You are looking to make a donation in a year when your income is high.
  • You have a pending liquidity event that will incur a large tax (ex: sale of business).
  • You have highly appreciated assets (low cost basis) that can be donated without incurring capital gains tax.
  • You want philanthropy to unite your family. Some families contribute to the fund together and exchange ideas about which charities to help.
  • You may want a simple, efficient, tech-savvy way to make charitable donations.
Posted in: Charity, Investing
Kevin X. Smith, CFA
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Kevin is responsible for advising clients for whom he is the lead financial advisor. He also manages the operations and development of the firm, and oversees all of the investments of Austin Wealth Management clients. Kevin is on a mission…Read More

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