For individuals and families with strong charitable inclinations, donor-advised funds (DAFs) may provide many of the same grant-making and tax benefits of a private foundation, but without the operating expense and administrative burden of creating and running a private foundation. A donor-advised fund (DAF) is a charitable giving vehicle that allows you to make a charitable contribution, receive an immediate tax deduction, and then recommend grants to your favorite charities over time. Think of it as a charitable savings account.

THE BASICS

• A donor makes an unconditional and irrevocable contribution to one of several sponsoring organizations that have established a DAF.
• The donor selects from among various mutual funds in which their contributions will be invested.
• The donor receives an immediate charitable income tax deduction equal to their contributions.
• The donor periodically recommends which individual public charities should receive grants.
• The donor receives periodic reports from the DAF on the earnings and disposition of the funds.
• In some cases, the donors will have the right to designate successor “advisers,” such as their children, who may continue to advise the fund after the donor’s death.

OTHER CONSIDERATIONS

• Because DAFs are designated as “public charities,” contributions to donor advised funds are deductible at the most favorable public charity levels. This allows donors to deduct up to 60% of their adjusted gross income when cash is contributed to a DAF, or up to 30% of their adjusted gross income for gifts of appreciated stock. (These percentage limitations are lower for contributions to private foundations.)
• The donor’s recommendations to the sponsoring DAF as to how the contributions should be used are non-binding, advisory recommendations only. Donors who wish to retain greater control over which individual charitable organizations receive their contributions may prefer the alternative of a private foundation. However, private foundations are complex, can generate costly administrative expenses, and will generally only be practical for charitable gifts of $1 million or more.

SUMMARY

The tax and practical advantages of a donor-advised fund may provide a flexible and rewarding alternative to a private foundation for many charitably inclined individuals and families.

To find out more about the specific procedures for individual donor-advised funds, or to learn about other planned giving techniques, contact your financial advisor or the author, Lana Hock, for more information regarding DAFs.

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Lana Hock is a Director/Financial Advisor with the Hock Group at R.W. Baird & Co. and specializes in wealth management and financial planning for individuals and small business owners. Her lifelong love of animals was sparked while growing up on a farm in Nebraska. She has been supporting FACE since 2021 and joined the Board of Directors in 2023. Look for future columns in FACE newsletters covering other popular gifting strategies including in-kind donations, retirement accounts, donor advised funds, private foundations, and charitable trusts.

Donors should consult with their personal tax professionals – this is not considered tax/legal advice.

For information on including FACE in your legacy planning, visit our website, https://face4pets.org/planned-giving/ or contact  our Director of Development, Annamarie Maricle at annamarie@face4pets.org  or 858-450-3223 (option 3).