I love the fall, do you?  For me it’s a time to transition out of busy summers, celebrate with a holiday centered around food, and reflect on what we are grateful for as well as what we would like to make improvements on in the upcoming year.

This inflection point is a great time to consider a Donor Advised Fund.

If you haven’t heard of a Donor Advised Fund (DAF), allow me to introduce you to the tool.  A DAF is an account that you make irrevocable contributions to, of which you get to immediately deduct as a charitable contribution (subject to IRS limitations, generally 60% of AGI for cash donations and FMV of up to 30% of AGI for highly appreciated assets like stocks, real estate or shares of a closely held company). 

Inside the account (DAF), the funds can be held or invested in a variety of vehicles, and, on your timeline can be granted to charities in any amount of your choosing.  In the meantime, assets held within the account grow tax-free!

These funds were established as an alternative for philanthropically inclined households who liked the idea of having a family foundation but didn’t quite have enough capital for that to be feasible.

Consider these two hypothetical examples:

  • Mary & Joe have a highly appreciated stock position they are dreading the sale of because their income tax is already in the 35 or 37% marginal tax bracket.  They could donate all or some of the stock to a DAF this fall and deduct the fair market value from their income tax this year (subject to the AGI limitations mentioned above).  This is super handy because it gives them some control and ability to plan for their tax situation now without having to rush to find the charity or multiple charities to squeeze in a donation to before year end.
  •  Jen & Mel are super proactive in their financial planning.  They recently had a son and one of the important tenants of money they’d like to teach him is giving.  They set up a DAF and contribute a budgeted amount monthly based on their spending plan for the year.  Now, every Thanksgiving, as part of a family planning meeting, they will have a family discussion about what charity(ies) they’d like grant funds to this year and why.

Some other fun features of a DAF are that you can name it, ie: the “Smith Family Foundation” or “Empowering Women Fund.”  Also, if you are like me and find that there are several causes that you contribute to throughout the year and you aren’t a fan of keeping track of receipts, your DAF contribution receipt is the only one you need for tax accounting.

If you find this information valuable, please pass it along to your friends and loved ones.  If you have more questions or would like to see how a DAF could fit into your overall financial strategy, please never hesitate to reach out to us via email or phone.