Top 5 Advantages of Donor-Advised Funds for Charitable Giving
Donor-advised funds — also known as DAFs — are popular charitable giving vehicles. Below we outline five advantages of using DAFs for charitable giving.
1. Tax deductions provided by DAFs are very favorable.
As a gift to public charity, DAF contributions qualify for very favorable tax treatment. DAF donors can take a federal income tax charitable deduction of up to 60% of adjusted gross income on gifts of cash and up to 30% on stock or other appreciated assets. And most assets in the DAF can grow tax-free. Also, the amount of the deduction (subject to the aforementioned limitations) for gifts of private business interests and certain other assets is based on fair market value as opposed to the lesser of fair market value or cost basis if contributed to a private foundation.
2. DAFs can accept contributions of a wide array of assets.
DAFs can accept and administer contributions of illiquid assets such as privately held stock (including shares in C corporations, S corporations and limited liability companies), real estate, alternative investments, cryptocurrency and other complex assets.
3. Set-up is easy and costs are comparatively low.
Because DAFs are administered by a sponsoring organization, they can be established quickly and with minimal costs to the donor. There are no significant legal, accounting or filing costs required. The simple donation process makes it easy for donors to do tax planning close to year end.
4. DAFs provide great flexibility in grant timing.
While private foundations require an annual payout of at least 5%, DAF advisors (i.e., anyone authorized by the donor to make grant recommendations) can choose to recommend as much or as little as they would like in a given year. This flexibility allows donors to contribute to a DAF, take their deduction and then spend a year or more deciding which charities to support.
5. DAFs offer either recognition or anonymity.
DAFs allow their donors confidentiality, should they choose it. Grants from a DAF can be accompanied by the donor fund’s name for recognition, or they can be completely anonymous. DAF advisors may choose how they wish to be recognized (if at all) on a grant-by-grant basis.
If you have any questions, please reach out to your Glenmede Relationship Manager or email PhilanthropicAdvisory@Glenmede.com.
This presentation is intended to provide a review of issues or topics of possible interest to Glenmede Trust Company clients and friends and is not intended as investment, tax or legal advice. It contains Glenmede’s opinions, which may change after the date of publication. Information gathered from third-party sources is assumed reliable but is not guaranteed. No outcome, including performance or tax consequences, is guaranteed, due to various risks and uncertainties. Clients are encouraged to discuss anything they see here of interest with their tax advisor, attorney or Glenmede Relationship Manager.