Why have Donor Advise Funds risen in popularity?

Maximize charitable giving. Minimize tax burdens.

Charitable giving is an important aspect of a healthy financial practice. When you give to charities, you want to do so in an efficient and impactful way. One resourceful way to do this is through donor-advised funds (DAF). Through DAFs, patrons are able to maximize charitable giving while also minimizing your tax burden.

So, what is a Donor-Advised Fund?

A DAF is a charitable investment account for the sole purpose of supporting charitable organizations you are passionate about.  You, the donor, contribute personal assets to the DAF. The gifts can be any size, given at one time or over serval years. Some examples of assets often contributed to DAFs are stocks, bonds, and mutual funds. Once the money is in the DAF, it is invested in an investment portfolio that you choose, and the funds grow tax-free within the DAF.

It is important to note that, gifts given to DAFs are irrevocable, meaning that once given, gifts or assets can’t be taken by the donor, and they have to be given to a charity at some point.

Why are Donor-Advised Funds so popular?

One of the main reasons DAFs are so popular is their tax benefits. Due to the fact that the assets have to be contributed to a charity, you can receive an income tax charitable deduction in the year of the contribution to a DAF. These tax deductions allow you to give money to the DAF, receive the tax deduction, and then gift the money to charity when you want to.

The nature of the DAF also allows you to have money that is specifically allocated to giving. Creating structure to the way you give is a great way to ensure that you are meeting your charitable giving goals in an efficient and effective way.

Through your DAF, you are able to support practically any IRS-qualified public charity with grants from your donor-advised fund—from your local women’s shelter to your alma mater or church. Ultimately, the flexibility and tax benefits of DAFs set it apart in the arena of charitable giving and have caused it to rise in popularity.

To learn more about this topic, listen to our podcast episode on Donor Advise Funds.

Fidelity Charitable. 2022. What is a donor-advised fund?. [online] Available at: <https://www.fidelitycharitable.org/guidance/philanthropy/what-is-a-donor-advised-fund.html> [Accessed 11 July 2022].

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