I have been reviewing the benefits of Donor Advised Funds (DAFs) with clients as a way to get the most out of their charitable giving considering many are now seeing the impact the recent tax law change has had on the deductibility of donations.
I believe DAFs are a great tool to continue to give to charity and receive a deduction.
A Donor Advised Fund is an account set up by making an irrevocable donation to an account solely for the purpose of making charitable donations now and in the future.
Going forward, the client now has a $17,000 pool of money to make donations (potentially anonymously, if they so choose) in perpetuity, or until the money runs out.
The name “donor-advised” comes from the fact that future donations made from the DAF are directed by the person who established the fund. Grants can be made only to IRS-qualified public charities. These are organizations that are tax exempt under section 501(c)(3), and either:
Eligible public charities include the full range of charitable organizations, including hospitals, scientific and medical research organizations, religious organizations and places of worship, environmental and educational organizations, museums and arts organizations, and any other organizations or institutions formed and operated for charitable purposes.
It is important to note that when a donation (in DAF parlance, a grant) is made from a DAF it does not give the account holder an additional deduction. The tax deduction is taken at inception, or with subsequent contributions to a DAF only.
Many custodians such as Vanguard, Fidelity and Charles Schwab have specific websites and funds dedicated to this. There are also specific DAFs, like the Jewish Communal Fund or other public charities.
The custodian establishing the fund may charge an annual fee and, because you can invest the money you have donated, and there may be additional fund fees, so it is important to do your homework before choosing one. There are other questions to ask for before proceeding, such as: what are the minimums for establishing the fund, what are minimums for additional contributions to the fund and what is the minimum grant amount allowed? (There are some DAFs that have minimum grants of $250, which may not work if you typically give $50 to the charity.)
As DAFs have grown in popularity, many not-for-profit organizations have added a link on their website giving donors the ability to make a donation directly from their DAF.
Please do not hesitate to call us if you would like to learn more about how you can continue to benefit from charitable donations. The tax law made it more difficult, but we can share strategies that make it possible.
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