Donor advised funds in philanthropy
This guide puts donor advised funds in the greater context of philanthropy, and covers specific details including how the funds work, tax benefits, ways to choose charities to support and what kinds of assets you can use to open and increase your charitable account.
living a philanthropic life
the donor advised fund is part of a thriving landscape of giving.
For many people, helping others through philanthropy is a vital component of a rewarding life. A meaningful existence, in this context, may include giving back to the community, improving the lives of those in need, contributing to scientific research, or supporting cultural institutions or the arts. This commitment to charitable giving and philanthropic involvement can take many forms, and it can work in several different ways—but the important common denominator is making a difference.
Donor Advised Funds
The stage was set for donor advised funds in 1969, when Congress passed the Tax Reform Act, which instituted new requirements for regulating and defining private foundations. Among the new restrictions imposed were excise taxes, from which public charities were exempt. This exemption opened the door to the creation of various forms of public charities and ways to support them, including the donor advised fund.
Charities Are 501(c)(3)s
A charity is a nonprofit organization that devotes all its resources to its own charitable activities—most commonly education, promotion of health, relief of poverty or distress, or religious purposes. None of its income may be for the personal benefit of any member or trustee of the organization. Charities are exempt from federal income tax under Section 501(c)(3) of the IRS code, and can receive tax-deductible gifts.
what is a donor advised fund?
a donor advised fund is a gift that lets you keep on giving.
A donor advised fund (DAF) is one way to organize your philanthropic giving and support causes that are important to you, for your lifetime and beyond.
As a donor, you make a grant to a parent charity. That money is used to open an account—the donor advised fund—in your name. The charity manages the fund and distributes gifts from it to specific charitable organizations in response to your recommendation, or advice.
Each time you want to make a gift, you specify the recipient and the amount. Most parent charities make every effort to approve recommendations, provided the funds are going to a legitimate charitable purpose. Final approval for all grants rests with the parent charity.
First Things First
The gift you make to establish the fund, and any future gifts, are irrevocable, or nonrefundable. While this might seem to be a drawback, it in effect creates what you might think of as a philanthropic nest egg. You commit that money to establish or expand your philanthropic legacy, just as you might assign money to an irrevocable trust for your children, for example, to help them enjoy a secure financial future.