Give More to Get More: Discovering Donor Advised Funds
Donor Advised Funds
Definition: A Donor Advised Fund (DAF) is an account established at Community Foundations or similar 501 c 3 “Public Charity” from which the donor can request further donations to another charity.
Reason to use: to create charitable deductions and to collect charitable dollars when it is convenient – or tax advantageous – for the donor to give.
- Donor's gifts may be on a different schedule then donor's “checkbook” or tax planning
- Donors often receive better tax breaks when giving during one time than at another.
- Tax planning takes up enough brainspace, why overlap it with social change gifts? Create separate time for choosing good social change gifts without tax pressures.
- DAFs can be a staging ground for gifts.
The benefit of doing a DAF with a local organization:
- you probably have a lower minimum amount,
- you can talk to a human when you want to make a gift
- and it supports a local organization through fees.
Donor Advised Fund Example
Example: Z Family Donor Advised Fund
Advisors: M. Z & M. Y (husband and wife)
Location: Illinois Prairie Community Foundation (IPCF), of Normal , Illinois
Sample Use: On December 1, M. Z reviews how much he earns this year. He decides he needs an additional tax writeoff. December is very busy for M. Z. While M. Z has many good causes, he does not want to take the time to decide which, specifically; he wants to give money to when he is so busy with tax planning.
M. Z knows the tax advantages of giving appreciated stocks versus writing a check, so he checks his stock portfolio and fills out the form to transfer 500 shares of ABC stock to the Illinois Prairie Community Foundation, Normal, Illinois, to place in the Z Family Donor Advised Fund. On December 8th the stock is transferred, the Community Foundation sells the stock and makes money available for M. Z to donate to causes.
M. Z looks at his taxes again on December 15 and decides he needs more write offs to trim his tax bill further, so he writes an additional check for $10,000 to the Illinois Prairie Community Foundation, Normal, Illinois, to place in the Z Family Donor Advised Fund. Technically the gift occurs when M. Z puts it in the US mail, not when it is received by IPCF.
On February 1, M. Z fills in the form to ‘advise' the IPCF give $500 to Crossroads Fund. IPCF checks to make sure that Crossroads is a bona fide qualifying charity, then sends off the check on February 8 as part of its weekly procedure of sending out checks from DAFs. The rest of the money remains available for later gifts. To note:
- Asset/ money goes into an account that the donor (or appointee) “advises” on.
- Timing of charitable deduction: when the money/asset goes into the account
- At the donor's request, the foundation gives an amount on to the ultimate cause/charity
- The Donor receives one write off, at the time the donor gives the money to the foundation; no further write off when foundation gives the money on to the further cause/faith/foundation.
- Advisors can be someone other than the donor(s).
DAFS can help reduce your taxes (transferring those savings into either more money for you or more money to give away). How?
- Lump several years giving into one year.
- Give enough to reduce your taxable income – “Bracket Clipping”
- Give to upgrade your portfolio (give appreciated, even beloved stock, then if preferred repurchase it with higher cost basis)
- Give to clean up your portfolio (when you don't know the cost basis)
- Give for FAMILY
Donor Advised Fund Resources
Article in FPA Journal, Philanthropy 101: Donor Advised Funds at http://www.fpanet.org/journal/articles/2003_Issues/jfp1103-art8.cfm
DAF at Crossroads: http://www.crossroadsfund.org/CreatingDAfund.html
Advanced use of DAFs—Use a DAF as a staging ground for a giving circle. A giving circle is a group of people who agree to pool their gifts and their commitment toward a common cause.
Giving Circles
“Never doubt that a small group of thoughtful, committed citizens can change the world. Indeed, it's the only thing that ever has.” --Margaret Mead
For more information on giving circles find a wealth of information at:
