Top 5 Advantages of Donor-Advised Funds for Charitable Giving
Donor Advised Funds, also known as DAFs, have emerged as a popular charitable giving tool. Below, we outline five advantages of using donor-advised funds 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 may be able to 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.
2. DAFs can handle 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, and other complex assets.
3. Set-up is easy and costs are very 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 donor 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.
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