What Is a Donor-Advised Fund?
Donor-Advised Funds (DAFs) have become a popular donation vehicle in recent years. DAFs allow you to take a charitable deduction for donations now, but decide later which charities will benefit from your generosity. The income tax deduction is allowed in the year of the donation to the DAF. These funds are public charities, so contributions are not subject to the deduction limitations that apply to private foundations.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) passed on March 27, 2020, allows an election to deduct charitable contributions up to 100% of Adjusted Gross Income (AGI) for the tax year 2020. Be aware that this election applies to cash contributions to 501(c)(3) public charities, but is not available for donations to DAFs, supporting organizations, or private foundations. The limitation on donations to DAFs remains 60% of AGI for cash donations and 30% for appreciated noncash donations.
Most DAFs fall into one of three categories: (1) a part of a community foundation, (2) affiliated with a large mutual fund, or (3) independent, which includes certain religiously focused DAFs. The type you choose will have more to do with the fund’s guidelines and your convenience than any tax considerations. Community foundations can offer advice regarding needs in their region or community, so if that is a priority, then your local community foundation may be a good option.
Each DAF has its own guidelines regarding the type of assets it will accept as a donation, a minimum donation to start a fund, the investment alternatives available to the fund, and the minimum grant size. All DAFs accept cash and marketable securities as donations, but if you wish to donate closely-held stock, real estate, and other less-liquid assets you will need to make inquiries to find a DAF that will accept those donations.
DAFs allow you to name your fund. That fund name can be associated with the charitable grants from the fund, so your fund name can appear as a donor in an annual report or fundraiser program. However, you cannot receive any benefits from a grant made from a DAF (i.e., fundraiser tickets, memberships). All DAFs allow grants to be made anonymously, which may appeal to you if you wish to support a cause but not be approached for future fundraising.
Please let us know if you have any further questions or would like to discuss tax implications on various types of donations to a DAF.