Introduction to Donor Advised Funds - Part 2

Introduction to Donor Advised Funds - Part 2

In Part 1 we introduced the problems many people encounter with charitable giving and the solution in Donor Advised Funds. Here we will look at some of the best practices for DAFs.

We advise clients to consider their community foundation or an independent DAF over the other two providers. Large national charitable organizations often restrict grants to charitable organizations that share the same religious or social ideology. Investment firms that offer DAFs restrict the donor’s investment options to benefit the investment company.

Large national charitable organizations often restrict grants to charitable organizations that share the same religious or social ideology.

Many local community foundations and most independent DAF give the donor the optimal flexibility! They enable the donor to make grants to any 501c3 charitable organization throughout the U.S. Donors can have family members be successive advisors to the DAF, so future generations can continue the grant making. Finally, most DAFs allow for donors to select their own investment manager and/or strategy within the DAF.

How A Donor Advised Fund Operates

Interested in a Private Family Foundation? An independent DAF offers greater benefits than a Private Family Foundation (PFF) without all the hassle. A PFF has significant upfront costs and expensive annual administrative expenses. A PFF also mandates that the foundation must payout at least five percent annually to charitable organizations and is subject to tax on investment income. A PFF is not private; all PFFs must file a tax form (990) that indicates the amount in the foundation, contributions, grants and board members. Finally a PFF has restrictions on how much a donor can deduct against their taxable income. A DAF is completely private, has no required annual grants, and no set-up costs. DAFs are not subject to excise taxes and offer the maximum deduction against income taxes!

Contact us if you would like to discuss about charitable giving or a Donor Advised Funds.

Robert K. O’Dell

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