Donor Advised Funds: The Best Giving Tool You’ve Never Heard Of

According to the National Philanthropic Trust, Americans gave $358.38 billion to charities in 2015 – a four percent uptick from the previous year. Charitable giving is alive and well in the United States and there’s no better time than now to establish a giving plan for your family.

While there are multiple vehicles available to help support philanthropic giving, we find that donor advised funds (DAF) tend to be the most efficient and effective giving vehicles. They are simple, low cost, and flexible. They allow donors to maximize the tax benefits of charitable giving while supporting their favorite organizations.

WHAT ARE DONOR ADVISED FUNDS?

A DAF is simply an account that helps givers manage their charitable contributions. Through an agreement with a DAF provider, a donor creates a specially named account (i.e. “Smith Family Fund”) to which irrevocable contributions are made. The donor receives an immediate tax deduction but is not forced to make any grants. They can work with their financial planner to invest and grow the assets and recommend grants to their favorite non-profit, 501(c)(3) organizations at their leisure.

WHY USE DONOR ADVISED FUNDS?

1. Simplicity. Unlike a private foundation, the donor is not responsible for hiring attorneys and accountants or maintaining a board of directors. The sponsoring organization that holds the fund takes responsibility of all the expensive administration work, including filing annual returns and preparing financial statements.
2. Tax Efficiency. DAF contributions provide a federal income tax deduction up to 50 percent of adjusted gross income for cash contributions and up to 30 percent of adjusted gross income for appreciated securities. Along with publicly traded securities, DAF holders can also contribute complex assets such as real estate, limited partnership interests, private C- and S-Corp stock, and other privately held assets.
3. Flexibility. DAF holders receive an immediate tax deduction for their contribution but they are not subject to a legal minimum payout requirement like a private foundation. The flexibility helps donors maximize tax benefits while helping them be more systematic and methodical about their giving.

SAN DIEGO GIVING BACK

In 2015, Charity Navigator named San Diego as the number two ranked philanthropic city in the U.S. The rapid growth of vehicles like donor advised funds has helped San Diego donors increase their charitable contributions and remain at the top of the charts.

Some of the non-profit organizations in San Diego that have been granted to with greater frequency from donor advised funds include Challenged Athletes, San Diego Humane Society & SPCA, Invisible Children, and the San Diego Library Foundation.

If you haven’t engaged in charitable giving yet, now is a great time to start. And in doing so, consider the benefits of a donor advised fund—to you and to the future recipients.