DAFs…an acronym for the phrase “Do a flippin’ search!” for use when someone is wasting other people’s time by asking questions about something that could by easily researched online?
No, I’m referring to a donor-advised fund – a charitable giving vehicle administered by a commercial or charitable provider that is created for the purpose of managing one’s charitable donations. There are commercial sponsors of DAFs, such as Schwab, Fidelity and Vanguard, as well as non-profit sponsors, which are usually community foundations. In most cases DAFs are a superior alternative to direct giving or creating a private foundation, as they are easy to establish, low cost, and flexible.
In fact, DAFs now outnumber private foundations by more than two to one and are the fastest growing charitable giving vehicle in the U.S., with more than 150,000 donor-advised accounts holding over $27 billion in assets. In 2009, annual contributions into donor-advised funds were $5.9 billion, donors recommended grants of $6.0 billion to charities, and average account size was $152,365.
Because the funds are set up within a qualified public charity, donors receive the maximum tax deduction available, while avoiding excise taxes and other restrictions imposed on private foundations. Further, donors avoid the cost of establishing and administering a private foundation, including staffing and legal fees. Commercial DAFs can be established with as little as $5,000, while community foundation-sponsored DAFs may require an initial contribution of $25,000 or more. Often, grants for amounts as small as $100 can be processed through one’s DAF.
The donor receives a tax deduction for the year during which the gift is made, but may then grant out funds from the account at any point in the future. (There is no further tax benefit available to the donor at the time of the grants because the deduction has already been taken.) In the meantime, the funds may be invested (there are usually several options) so that they will grow to provide more money for future granting. The foundation administering the fund technically gains full control over the funds, but the donor maintains “advisory” status and makes “recommendations” for grants to other qualified non-profits. Sponsoring organizations will normally only deny a donor’s request if the intended recipients are not qualified public charities, or if they are deemed to be a terrorist organization or engaged in other illegal activities.
A donor-advised fund allows you to involve your family in your philanthropy just as a private foundation does. The primary difference is that you are unable to employ family members as you may in a private foundation (with many restrictions). You can name your children, for example, as successor donors on an account should you pass away.
Though a DAF may be funded with cash, you will get the most “bang for your buck” by donating appreciated securities or other assets. That way you not only receive a write-off for the fair market value, but you avoid the gain on the appreciation that you would otherwise pay.
Let us know if we can provide further information or if you are interested in setting up a DAF for your family.