Advantages of Donor-Advised Funds (DAF)
There are many advantages of a DAF, and it can be used as an instrument of charitable giving in the upcoming year. The Donor-Advised Funds has many attractive aspects, and can be set up very easily to start giving right away. You may not have heard of DAFs, therefore, let’s first go over what they are and how they can be useful in the new year for an instrument of your charitable giving plan and options.
What is a Donor-Advised Funds?
Donor-Advised Funds allow donors to give a gift to someone else for between $5,000 and up to $1 billion dollars-worth of cash, securities, shares of stock or real property. The DAF lets donors give private tax-deductible gifts, in a way to avoid capital gains taxes and income tax deductions. The use of DAFs allows donors to:
- Make contributions to others of assets
- Allow donors to receive an immediate tax benefit
- Can help donors plan for charitable legacies
- Can offer grants over time on your own schedule
- Manages investments over time
Donor-Advised Funds is a charitable account that a donor can open in the name of one or more donors that will be held in the custody of a nonprofit charitable organization. These are usually created with a financial services company, community foundation or even a university. The Donor-Advised Funds accounts are usually advised for asset minimums of only $5,000, not the several millions of dollars in charitable assets that are the subject of private foundations.
In the Donor-Advised Funds, the donor puts in the money for the account, and forwards grants to any chosen 501(c)(3) charitable organizations picked. The organizations need to be checked out for due diligence, and need to be in good standing with the IRS. The donor can name the custodian for the DAF account. It will need to be someone that you can trust, and who has time to manage this account for you during the calendar year. A custodian for the Donor-Advised Funds will have the duties of managing the investment of charitable assets, per the donor’s requests.
The custodian will also perform basic recordkeeping for the trust, give the donors access to the contribution records and grants for tax purposes, and generally manage the accounts for the donors. There are no annual disbursements with a DAF account, nor are there any need for public filings. The gifts can start at $100 and grants can start at around $50, as either named or anonymous gifts. The administrative fees are around 1 percent of the assets, or can be even lower for larger consolidated accounts. Another advantage of the DAF account, is that it does not require any excise taxes or any annual state and federal tax returns. The tax deduction limits for securities contributions are going to be 30% of the adjusted gross income (AGI), with the tax deduction limits or cash contributions at 50% of the AGI.
If you have any questions on IRAs or saving money for retirement, get in touch with a Texas estate planning lawyer to learn more about your right