Donor-advised funds are easy to set up and maintain and have significant tax and financial advantages. Here are 4 reasons to consider one.
When it comes to supporting causes close to your heart and crafting your legacy, donor-advised funds (DAFs) are among the most popular and effective options available—and with good reason. Created through a written agreement between a donor and a DAF-partner public charity, donors make an irrevocable gift to the fund, then advise the charity where they wish grants to be made. While these funds have been around for decades, they have become one of the fastest-growing charitable giving tools because they’re easy to set up and maintain, while providing significant tax and financial advantages.
As you consider how to use your lifetime savings and investments to make a positive difference in the world, a DAF gives you the opportunity to provide long-term support to causes you care about. As a member of the Roman Catholic faith, DAFs give you an opportunity to provide ongoing charitable contributions to your parish, Catholic school, or other faith-related charity. It’s a concrete way to give thanks for God’s blessings and help the Catholic institutions that matter to you remain financially secure.
Thinking about establishing a DAF? Here are four things you should know.
- They’re easy to set up and maintain.
DAFs are an excellent alternative to private foundations because they’re easier to create and less time-consuming and costly to maintain than private foundations. For example, if you create a private foundation, you need to manage the administrative and tax obligations of operating a separate entity. However, a DAF shifts the administrative and regulatory burden to the partner public charity, because it holds the fund assets and is responsible for their distribution.
DAFs can be created by individuals, families, or companies. Let’s take Catholic Community Foundation DAFs as an example: There are no upfront costs. You just contact the Foundation to get started. Choose the name of your fund and make a tax-deductible donation of cash, stocks, or other appreciated assets of $10,000 or more. Finally, you can recommend grants to qualified 501(c)3 nonprofits at any time. A statement of activity will be mailed to you each quarter.
- They give you tax advantages now and the flexibility to make grant recommendations when you want.
Once you donate to the fund, you may qualify for a charitable donation deduction in the full amount for that tax year, even if your grant recommendations to specific nonprofits aren’t made until later. Be sure to check with your financial advisor or tax professional to determine a donation’s impact on your tax situation.
Donors can typically add to the fund’s assets at any time and make recommendations about grant distributions as they see fit.
- They’re an easy way to transfer a variety of assets.
If you intend to transfer assets like stocks and real estate to more than one designated nonprofit, DAFs give you an easy way to do so. Rather than using a brokerage account and bearing the administrative burden of selling or transferring these assets to each of these charitable entities, you simply transfer the assets to the DAF partner charity and then make recommendations for the funds you wish the DAF to award to your designated non-profits.
- They let you share your values with your family.
Philanthropy is a perfect way for your family to bond and share your Catholic values. DAFs allow you to recommend contributions to multiple charities throughout the year, providing you, your spouse, your children, and other family members the opportunity to work together in selecting the causes that are most meaningful to you. You may even want to allow your children to be responsible for recommending a certain amount of giving on an annual basis, giving them hands-on charitable giving experience, as well as the satisfaction that comes with supporting worthy causes.
DAFs give you both flexibility and convenience while allowing you to support the causes that have been such an important part of your Catholic faith. For more information about opening a DAF with Catholic Community Foundation, visit contact us.