Financial Planning Fridays #34: Donor Advised Funds

Today we wanted to discuss something that is very important to us at Presilium Private Wealth: charitable giving. One of the most effective ways to accomplish this is by using a special investment account called at Donor Advised Fund, also commonly called at DAF. Donor Advised Funds are the fastest growing investment vehicle in philanthropy today. DAFs can benefit you, your family, and the charities that are most important to you.

What are DAFs?

DAFs are a special investment account that allows you to receive a charitable tax deduction in the year of your donation. Your funds grow tax-free until you’re ready to distribute part or all of your account to your qualified charities.

More $234 Billion was invested into these types of accounts as of the end of 2021 and more than $45 billion in grants were paid out to charitable organizations from DAFs in that same year.

How do DAFs work?

The first step is opening a Donor Advised Fund account. At Presilium, we use Fidelity Charitable which holds more assets than any other DAF. There is no minimum balance for this type of account.

The next step is to transfer cash, stock, private business interests, restricted stock or any variety of other assets. You will receive an immediate charitable tax deduction for your contribution to your new account. The funds then grow tax-free inside of your DAF until you’re ready to make a donation to a qualified charity. You can wait as long as you like to make your first donation.

A donor advised fund also makes record keeping easier. We’ve all experienced the frustration of hunting down every gift acknowledgement and receipt from the charities we’ve given to. With a DAF, you will only need one single receipt from your DAF contribution.

Many people also make a DAF part of their estate plan. You can name a successor who can continue your charitable legacy after you pass away. The use of DAFs is especially beneficial when you are:

  • in a high tax bracket
  • have a special event, such as selling your business or exercising a large stock option
  • would like to receive a tax deduction, but are unsure which charities you may want to give to.

When you contribute to a DAF, you receive the tax deduction immediately. After this they begin to distribute the funds to charity in the future year or years that you are ready to give but may not benefit as much from the tax deduction. This may allow you to save taxes and consequently give even more to your favorite charities.

We are happy to discuss donor advised funds in more detail with you, as well as compare them to other popular charitable giving accounts such as private foundations or charitable lead trusts.

Be on the lookout for our next Financial Planning Fridays episode. Subscribe to our Youtube Channel so you never miss an episode. Or contact us directly; schedule your 15-minute call with us today.