Donor-Advised Funds Considerations to Help Accomplish Your Philanthropic Goals
By Jeffrey Abadie, CFP®
October 31, 2023
A donor-advised fund (DAF) is a charitable giving vehicle administered by a public charity that allows a donor to contribute, receive an immediate tax deduction, and recommend grants to charitable 501(c)3 organizations from the fund over time. There are several considerations when using a DAF that will help you make the most of their benefits. Here are some key considerations:
Charitable Goals – Begin by clarifying your charitable goals and intentions and making a list of the organizations you would like to support. Articulating goals helps clarify your purpose and therefore helps guide your decisions.
Contributions – Determining the amount to contribute to your DAF often follows input from your Wealth Manager (what can you afford to give) and your tax professional (expected tax benefit). Additionally, your Wealth Manager can help you find the optimal asset(s) to fund your DAF. DAFs are often great vehicles to accept highly appreciated private or public stock.
Tax Deduction – Understand that contributions to the DAF are generally tax deductible in the year they are made but grants from the fund receive no tax benefit. Coordinate with your tax professional to maximize deductions as it often is best to bundle several years’ worth of contributions into one tax year for maximum benefit.
Investment Strategy – DAF contributions can be invested, growing the donation base for future grants. Your Wealth Manager can help you determine the appropriate strategy to balance both your goals and risk tolerance.
Grant Recommendations – DAFs allow you to recommend grants to qualified charitable organizations. It is important to make sure the organizations you plan to support meet the requirements for charitable contributions, which is a public, 501(c)3 non-profit organization recognized and currently in good standing with the IRS.
Grant Making Flexibility – It is important to know the DAF’s sponsoring organization’s policy on grantmaking. Some organizations may have minimum grant amounts, minimum number of gifts per year, restrictions on certain grants (such as grants to international organizations), or other specific guidelines for grantmaking.
Timing of Grants – Decide when and how often you plan to make charitable grants. Some charitable organizations prefer annual grants and others prefer various times throughout the year. As a reminder, the grant donation from the DAF does not generate a tax deduction, only the contribution into the DAF does, so there is no incentive to make a grant at any particular time for tax reasons.
Privacy Vs. Transparency – Part of the donation planning should be to determine whether you prefer the DAF organization to send your donations anonymously or allow them to disclose your information to the recipient. One nice feature of DAFs is the ability to choose a name for your fund which can shield your identity versus simply using the generic “anonymous”.
Long-Term Strategy – Much like the contribution’s consideration (#2) above, ensuring a long-term plan is sustainable by allowing your Wealth Manager to test your gift planning scenario(s) with cash flow projection software. A cash flow check-in will help the donor find the optimal gifting amounts that both accomplishes the philanthropic goal without jeopardizing the donor’s own needs.
Succession Planning – The DAF will allow you to determine what happens to the fund after you pass, which can vary from leaving the account to a new donor for continued grantmaking to dispersing the funds to one or more final recipient(s).
A donor-advised fund can be an effective and efficient vehicle to help ensure your financial and philanthropic objectives align. As with all endeavors that require financial, legal, and tax planning, it is recommended that you consult with your Wealth Manager to discuss your goals and develop a plan that can then be coordinated with the appropriate professionals on your team.
Sources: Fidelity Charitable, Schwab Charitable, National Philanthropic Trust, IRS.gov
This content was produced and provided by an unaffiliated third party entity. We are providing this video as a convenience only and such provision does not imply that Sand Hill or any of our employees, officers, or directors endorse, sponsor, approve, or guarantee any content in this video. Please also reference this chart, which should be reviewed prior to or contemporaneously with the video. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of securities listed in the chart.
Articles and Commentary Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA. For disclosures, including additional information on credential designations of SHGA representatives please see our Form ADV Part 2A and 2B Disclosure Brochures, which can be obtained by clicking here: https://www.sandhillexperience.com/advform
Video Presentations All video presentations discuss certain investment products and/or securities and are being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect Sand Hill Global Advisor’s (“SHGA”) or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. Any comments, opinions, or recommendations made by any host or other guest not affiliated with SHGA in this video do not necessarily reflect the views of SHGA, and non-SHGA persons appearing in this video do not fall under the supervisory purview of SHGA. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.
