Show Notes

What is a Donor Advised Fund (DAF) and how can it help you achieve your charitable goals? In today’s Finance Moment Podcast, Syverson Strege Financial Planner Ben Geiger shares some of the key benefits of a DAF to help you determine whether one might be a good tool to add to your charitable giving toolbox.

What exactly is a Donor Advised Fund? A DAF, in simple terms, is your own personal charitable account that allows you to donate to your favorite causes whenever you want without the administrative burden. A DAF is a philanthropic vehicle established at a public charity that allows you to contribute assets like cash, stocks, or other appreciated investments or assets to the fund. You will receive an immediate tax deduction in that tax year. But here's the beauty, you do not have to distribute the funds right away. You can take your time to decide which charities will receive the donations and your contributions could even grow tax free in the meantime.

So, what are some of the key benefits of a Donor Advised Fund. First and foremost, the tax benefits. When you contribute to a DAF you get that immediate tax deduction in this tax year. For cash donations you can deduct up to 60% of your adjusted gross income and for appreciated assets like stocks up to 30%. You also avoid the recognition of any long-term capital gain associated with the asset. This is particularly advantageous if you've had a high-income year you want to reduce your tax liability.

Another huge benefit can be the flexibility. A DAF allows you to be strategic in your giving. You can contribute during high income years to maximize the tax benefits and then disperse the funds to charities over time, maybe even during retirement if income is a little lower. This makes Donor Advised Funds a powerful tool for tax planning.

Another major benefit is simplicity. If you've ever donated to multiple charities, you know how sometimes it can be cumbersome to keep track of all the receipts and the deadlines. With A DAF you make a single contribution to your fund and then you can recommend grants to as many charities as you'd like without worrying about the paperwork. The DAF organization handles all the administrative tasks including getting that grant distributed and the record keeping.

One of the lesser-known benefits about DAFs is that your contributions can be invested. This means that your charitable dollars have the potential to grow tax free, increasing the impact of your donations. Over time, this could significantly amplify your ability to support the causes that you care about.

Another point to consider is the ability to remain anonymous. If you prefer to keep your charitable activities private, a DAF offers that option. You can choose to make grants anonymously, which can be particularly appealing in situations where you want to avoid public recognition or maybe unsolicited requests from other organizations.

Lastly let's talk about legacy. Many people use Donor Advised Funds to create lasting impact beyond their lifetime. You can name successors to your fund allowing your family to continue the tradition of giving in your name. This is a wonderful way to instill philanthropic values in the next generation and ensure that your charitable legacy endures.

Let's bring all this together and look at a practical example. For the sake of this example let's say that you already give about $20,000 per year and with some other deductions your total deductions are right below the standard deduction amount for this tax year. You're really not getting any tax benefit for your giving in this situation. One option you might have would be to stack two years of giving into one year to get your total deductions above the standard deduction amount so that you're getting benefit for the gifts you're giving. This stacked gift would be made to your Donor Advised Fund and you would contribute appreciated assets, avoid the capital gain, and get the deduction. Then in year two you will give out of your Donor Advised Fund rather than out of cash flow and use your cash flow to replenish the account you pulled from to make the stacked gift you gave to your donor advice fund last year. This will effectively increase your deductions in the first year while giving the same amount of charity over that two year span with no change to your cash flow while receiving the tax deduction. Can be a kind of a triple benefit.

So who should consider a donor advised fund? If you're someone who wants to streamline your charitable giving, maximize your tax benefit, and create a lasting legacy, a DAF might be the perfect fit for you. Whether you're donating cash, appreciated assets, or even more complex investments, A DAF offers a flexible and efficient way to manage your philanthropy.

As we wrap up today's episode, remember that charitable giving is a personal journey. Donor advised funds can be a powerful tool but it is just one tool among many. For additional information about donor advised funds or for assistance in exploring your charitable options, please call us at (515) 225-6000 to schedule a meeting with one of our certified financial planner practitioners