What is a Donor Advised Fund?

Many donors and individuals are turning to donor-advised funds (DAFs) to assist with their charitable efforts. There has been an explosion in the use of DAFs, which are funds set up for charitable purposes that can facilitate large donations.

Donor-advised funds are registered charitable foundations that are funded with cash, securities, or other assets. All the contributions are put into an account in the donor’s name, which is held by a DAF sponsor and eventually donated to a charity of the donor’s choosing.

Donors can take a current tax deduction for contributions made to the fund. This is an important feature because it allows a donor to 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. This incentivizes donors who need a tax deduction to donate now and then decide where the money will go at a later time when it’s convenient.

DAF’s are very well-equipped to convert appreciated securities or other tangible assets into cash.

The ability to do this can enable many folks to give a larger amount than they would otherwise. For example, a donor with 10,000 shares of Google with a very low-cost basis can hand this over to a DAF and take an immediate deduction for the full value of the donation (subject tax law limitations).

If they wanted to do the same for a local woman’s shelter, they would have to sell the stock and pay the capital gains tax on the sale.

Donor-advised funds can provide donors with an immediate tax deduction for funds that may not actually be distributed to a charity until months or years later.

Charity Exchange is a charitable foundation that operates as donor advised fund. To learn more visit our DAF FAQ page.

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