Donor Advised Funds
A Brief History
The very first Donor Advised Funds were established in the 1930s. However, they were not officially recognized until 1969 when the Tax Reform Act was enacted. Even then, it was not until the 1990’s that DAFs gained popularity and visibility. Now, they may be called philanthropy’s fastest-growing vehicles. In fact, today, they make up more than 3% of all charitable giving in the United States.
What is a Donor Advised Fund?
A Donor Advised Fund (DAF) is an account that is created through a sponsoring nonprofit organization, a financial institution or a community foundation. It can be considered as a ‘charitable savings account’ because you can add money to it whenever you want to. Some people opt for opening a DAF account instead of establishing a private foundation. DAF is becoming a favorite method of charitable giving. This is because it acts as a flexible and easy way to take care of your giving through which you can reach your strategic philanthropic goals.
The procedure of using a DAF account is simple. When you put any funds into it, you get a tax benefit right away. After that, it is up to you to decide who will receive donations from that fund, and where and how they will receive them. You can determine if you want to donate more or less, to one or more charities or how much you want to donate to each charity.
Whatever gifts you give to the charities, you help them in their causes. These causes may range from education to healthcare to crisis management, and so on. Through your donations, you can give back to the community and help transform the lives of those who are under-privileged.
There are several advantages of Donor Advised Funds. These include:
- It is easy and affordable to open a DAF account. In many cases, it can be done online too.
- These accounts grow tax-free. Due to this, you can contribute in a more significant way to your causes.
- Through DAFs, you can easily manage your charity funds intelligently and strategically as tracking your gifts is simple and easy.
- The majority of the DAF accounts allow you to contribute several assets such as cash, real estate, mutual funds, or publicly traded securities.
- If you would like to leave a legacy gift, you can name a nonprofit organization to be your DAF’s charitable beneficiary.
In other words, a DAF is a giving vehicle that operates for a public charity. The donors can utilize DAF to contribute to charity, be legible for an immediate tax deduction and after that, recommend grants from the fund as time passes. It is up to the donors how frequently they would like to contribute to the fund. They can also choose to recommend grants to any charity which maybe their favorite at any point in time, especially when it is needed.
How it Works
The method is simple and easy, as explained below:
- The donor makes an irreversible charitable contribution from personal assets. This could be in the shape of cash, real estate, stock, etc.
- He or she immediately receive the maximum tax deduction that is allowed by the law.
- The donor selects a name for the DAF account, along with the nominations for the advisors, successors or charitable beneficiaries.
- The contribution is now placed into a DAF account from where it can e invested and allowed to grow tax-free.
- At any point in time after that, the donor has the right to recommend grants from his or her account to one or more qualified charities of their choice.
Is a Donor-Advised Fund Right for You?
Are you looking for significant ways to give back to your community? If you are a philanthropist at heart who wants to expand your impact, a DAF is a very useful option for you. Consult your legal or financial advisor and make an informed decision about this. Good luck!
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