Donor Advised Funds: Where Charitable Giving and Tax Advantages Go Hand-In-Hand
Christopher Street Financial has a long history of giving back to our community, which you can read more about here. This is something we share with many of our clients, who also choose to support their respective communities and the causes that are important to them. For individuals who are charitably inclined and who are looking for tax advantages, a Donor Advised Fund (DAF) may be a solution to consider.
A Donor-Advised Fund is an innovative vehicle for giving to charities that you feel passionate about in a structured way over time. Instead of directly giving to various individual charities, a DAF allows you to be more strategic. When you initially contribute assets to a DAF, your donation is complete for tax purposes. You can receive a tax deduction in the year of the contribution and carry over any unused portion to future tax years. Those assets are held and invested in the DAF until you are ready to direct them to the charities of your choice over however long a period. You have the flexibility to distribute grants to your chosen charities on your own timeline, essentially separating the timing of the gift from the tax deduction benefits.
How it works
Step 1: Establish a Donor Advised Fund
A DAF is an easy account to open. If you’re interested in setting up a Donor Advised Fund, talk to your financial advisor. At Christopher Street, we engage Renaissance Charitable Foundation (RCF) to manage the contributions. We would open a separate account for your contributions.
Step 2: Contribute to Your Donor-Advised Fund
You can fund your DAF by contributing cash or publicly traded securities. With a DAF, you can even gift appreciated stocks – stocks that have grown in value since their original purchase – without paying capital gains tax. And you, as the Donor, receive a tax deduction in the year of donation.
Step 3: Let the Money Grow
The assets you contribute to your DAF are invested, and growth is tax-free.
Step 4: Grant Money to the Charities of Your Choice
When you are ready, you, as the Donor, recommend grants to one or more charities of your choice on your own timeline. This could be part of your estate planning, allowing your family to direct grants many years in the future. And unlike some other charitable structures, there are no required annual distributions. The only requirement for the grants is that the receiving organization must be a 501(c)(3) or a public charity under a 509(a). Many organizations list their tax filing status on their websites.
A Donor-Advised Fund may be right for you, if:
- You are charitably inclined
- You have charities that you plan to support over time
- You are interested in reducing your current tax bill
- You have large, appreciated stock positions, and you would like to manage your capital gains
- You want to involve your family in charitable giving while creating a lasting legacy
If you have any questions, please reach out to us. We would be happy to help you explore creating your own Donor Advised Fund. We love creating opportunities for our clients to make a difference.
