What is a Donor Advised Fund 

Jenny Handwerk |

What is a Donor Advised Fund 


A donor-advised fund is a private fund set up by a third party to manage charitable donations on behalf of an entitity, family, or individual.

After you've made your charitable contribution, you can choose one of eight investment funds, or a combination of these funds, to invest your pledge in. You can then recommend grants to approved charity organizations, as outlined in the Gift Trust's Gifting Booklet.

DAF accounts enable contributors to make a charitable gift, obtain an immediate tax benefit, and recommend future payments from the Fund over time. Donors are able to contribute to the Fund as often as they want and then recommend donations to their preferred charity organizations whenever possible. This enables donors to give when they can and grant when required.

In fact, because of their simplicity and flexibility, donar advised funds are one of the fastest-growing charitable giving vehicles in the United States. According to the National Philanthropic Trust


How a Donor-Advised Fund Works


Donor-advised funds have grown in popularity, owing to their ease of administration while giving donors significant discretion over the placement and distribution of philanthropic gifts. Furthermore, corporations can offer this service to clients at a lower transaction cost than if the funds were handled privately. Donor-advised funds democratize generosity by aggregating various donors and executing large charitable transactions.


Benefits of  Donor Advised Funds 


Simplified tax season

If you consistently donate to many NGOs, you can use a Donor Advised Fund to streamline your giving. Using a donor-advised fund allows you to give a single gift to your Fund and receive a single tax receipt. You can then utilize your Donor Advised Fund to make donations to any 501(c)(3) public charity operating anywhere in the world. There will be no more boxes full of receipts come tax season—only one tax receipt for the gift to the Donor Advised Fund.


Easily contribute a wide range of assets.


Giving non-cash assets is typically more tax-efficient than providing cash or credit cards, yet many charities struggle to accept these philanthropic contributions. Using a Giving Account, you can easily contribute assets other than cash. Sometimes, you can transfer shares directly from your brokerage account by clicking a button. 


Streamlined giving


You can manage your charity donations from a single, accessible account by centralizing your charity donations. Donors can use our secure online fund management tool to recommend gifts to their favorite NGOs, examine statements, and review gift and grant histories anytime. You can focus on donating while we handle the administrative aspects of philanthropy, such as fund asset investing, gift and grant processing, financial reporting, and tax reporting. 


Simplify recordkeeping and organization.


With a donor-advised fund, you need to keep track of the receipts for your DAF contributions, not every gift acknowledgment from every charity you support. When you're ready to contribute to your favorite charity, log in to your account and recommend a grant to any IRS-qualified public organization. 


Ability to donate complex assets


You can contribute to your Fund with various assets, including cash, publicly traded securities, mutual funds, real estate, and business interests—and our experts will guarantee that you earn the most significant tax deduction for your contributions. Some NGOs cannot accept complex assets, but your Fund's grants will be readily accepted.


Ability to involve your family in philanthropy.


Donor Advised Funds are an excellent tool for those who want to involve their family in charity giving. Serving as Fund Advisors is one way that grandkids and children can get involved in grantmaking. In order to preserve your philanthropic legacy for future generations, family members can also be designated as Successor Advisors to your Fund. Donor-advised funds are also exempt from estate taxes.


Donor- Advised Fund Contributions Limits 


A minimum initial donation of $10,000 and future minimum donations of $1,000 are required. Contributions other than cash, stocks, or mutual funds may have different minimums, require prequalification, take longer to process, and are approved individually.

Individual donors qualify for an instant itemized income tax deduction for their contributions. Donors can claim a deduction in the same year they contribute, but they can take their time drafting grant recommendations.

DAFs allow contributors to claim an instant tax credit for cash that may not be transferred to a charity for months or years. While this time gap has been criticized, the use of DAFs has increased dramatically in recent years among high-net-worth people in the US. To ensure that these funds serve you successfully, you must understand how they work and when to spend them.