Donor Advised Funds (DAFs) are becoming an increasingly popular way for individuals to make charitable donations. These funds are like charitable savings accounts that allow donors to make tax-deductible contributions, receive an immediate tax deduction, and then recommend grants to their favorite charitable organizations over time. By using DAFs, donors can take advantage of the benefits of charitable giving while also gaining flexibility in how they choose to donate their funds. They can be a great lower cost, less complicated option than establishing a foundation.
So, how does giving through a donor advised fund work? First, a donor establishes a DAF with a sponsoring organization, we work with Benefaction. The donor then makes a tax-deductible contribution to the DAF, which can be invested in a number of investment products. Any growth in the DAF happens tax-free. The donor can then recommend grants from the DAF to their favorite charitable organizations, which the sponsoring organization makes on their behalf. Donors can make grant recommendations at any time and can even involve family members in the process.
DAFs typically have lower costs than foundations, as they are easier to set up and require less administrative work. DAFs also often have lower minimum contribution amounts, making them accessible to a wider range of donors. There are typically still account management fees to be aware of, but these are less than the costs required to operate a Foundation. Foundations require more resources to establish and maintain, including legal fees and ongoing administrative expenses.
If privacy if something you are concerned about, DAFs offer a higher degree of privacy than foundations because they allow donors to give anonymously or use a pseudonym when making a gift. DAFs are managed by a sponsoring organization, which means the individual donors' names are not listed on publicly available tax filings or annual reports. In contrast, foundations are typically established as separate legal entities, and their tax filings are public record, which means that donor names and gifts are disclosed. Individuals who value privacy may prefer DAFs for their charitable giving because they can maintain anonymity while supporting their favorite causes.
Reach out to learn more about DAFs and if they are the right fit for your charitable giving goals.