Downs Law Firm, P.C.

Donor Advised Fund

Consider giving with a Donor Advised Fund?

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Funded with cash or other assets, donor-advised funds give charitably minded investors control of when and where their funds are distributed.

For those with a desire to leave assets to charity, consider a Donor Advised Fund.

Many Americans are feeling charitable these days and with good reasons. It’s a hard time for many, and if you are financially able, making donations may help you feel you are making a difference for others during uncertain times. There are many options when making donations, and the recent article “Choosing Charity: How Donor-Advised Funds Benefit Your Contributions” from Fort Worth Magazine explains your choices.

Donor Advised Funds (DAFs) can be opened for varying amounts, that is set by the sponsoring organizations. Smaller community foundations would welcome a DAF for $5,000, for instance. DAFs can be funded with cash or other assets, but once the donation is made, the asset no longer belongs to you. However, you may be able to decide when donations are distributed, and which charities receive funding. There are no required distribution dates, so the funds could go unused for a long time, while you receive the tax write-off right away.

You may also determine the investments within the fund, level of risk and overall investment strategy for the donor advised fund.

Another good reason to use DAFs: the sponsoring organization becomes the donor of record. Therefore, DAFs are an excellent way to make anonymous contributions.

There are also DAFs that involve active involvement from an advisor if that is of value to you.

Why is now a great time to use a Donor-Advised Fund?

Some investors have highly appreciated assets that could lead to significant tax liability if they were sold right now. DAFs offers an alternative—rather than sell the assets and pay taxes, putting them into a DAF can achieve the following:

  • You receive a tax deduction,
  • There are no capital gains taxes, and
  • Your chosen charity will fully benefit from the funds.

The pandemic has left many people facing uncertainty. Therefore, now isn’t the right time for everyone to open their wallets and a DAF. However, if you are charitably-minded and in a financial position to benefit from a DAF, it is a win-win situation for all concerned.

Reference: Fort Worth Magazine (Feb. 3, 2021) “Choosing Charity: How Donor-Advised Funds Benefit Your Contributions”

Suggested Key Terms: Donor Advised Funds, Capital Gains, Tax Deduction, DAF, Appreciated Assets, Sponsoring Organizations, Charities