If you’re charitably inclined, you're probably interested in maximizing your contribution to your favorite organizations and tax benefit. A Donor Advised Fund (DAF) can help you get there while giving your charitable giving strategy flexibility.

What Is a Donor Advised Fund?

Simply put, a DAF is an investment account for charitable giving purposes. You contribute as often as you want, get an immediate tax deduction for your contributions, leave the money in the fund to be invested for growth potential, and you get to recommend grants from your account to qualified charities at your discretion.

Generally speaking, a DAF is easier and cheaper to set up and administer than a foundation, more flexible than direct contributions to charities, and more tax advantageous than either. Let's dive deeper into why this type of fund is so beneficial.

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Why Donor Advised Funds Are Growing in Popularity

DAFs have become popular for investors who want the ease of use while retaining some control of their donations. They offer multiple attractive features that can benefit a variety of charitable giving strategies.

• Tax flexibility: The Tax Cuts and Jobs Act of 2017 introduced a limit to state and local tax deductions. Because of this, many individuals find that their itemized deductions are less than the standard deduction. When you take the standard deduction rather than itemizing, you don't get the corresponding tax benefit for your charitable giving. DAFs address this issue because they allow you to “bunch” several years’ worth of charitable deductions into one year so they can be itemized.
• Low cost & quick setup: Although there will be exceptions to the rule, DAF startup costs are generally slim, and setup is immediate. Different custodians have different minimum requirements for opening a DAF, so look for one that fits your financial plan.  
• Confidentiality: Names of individual donors to a DAF can be kept confidential. Meanwhile, foundations must file detailed and public tax returns, including the names of contributors who donate $5,000 or more during one year.
• Increased control & timing: A DAF allows you to take the tax deduction when it's most beneficial for you thanks to their immediately deductible donations. Then, you can leave your contributions in the fund to allow the capital to grow further before distributing. Again, this can be particularly helpful for those looking to itemize our current tax regime.

Types of Organizations That Sponsor Donor-Advised Funds

Generally, DAFs are sponsored by nonprofit organizations that manage individual accounts. The most common types of sponsoring organizations include:

• National nonprofits: The most popular type of sponsoring organization is the national nonprofit, sometimes explicitly designed for sponsoring DAFs. These national organizations, including those affiliated with financial services firms and brokerages, tend to be neutral on issues and geography and offer superior technology, more sophisticated investment options, and fee calculators. They’re typically better at dealing with non-cash, complex or unusual gifts and may be up to 40% cheaper than other sponsoring organizations.
• Community organizations: Hundreds of community and faith-based organizations sponsor DAFs for the benefit of people in a specific geographic area. You may choose this option if you're looking for local expertise, due diligence on small charities, and educational opportunities for charitable giving in your community.
• Public foundations, hospitals, universities, etc.: Many public and state-supported organizations have DAFs within their foundations. You may choose one of these if you’re interested in helping them advance their specific charitable mission.
• Large financial institutions: Many large institutions have set up their public charity offering DAFs. Examples include Fidelity Charitable and Schwab Charitable.

Donor Advised Funds: What You Need to Know

As you consider how a DAF could help you boost your charitable giving strategy, here are three important points to remember:

That “A” stands for “Advised.” You don’t get an absolute say on where your money goes, so make sure that you trust your DAF's sponsoring organization to reflect your interests. It's also beneficial to ensure that your charity of choice is eligible to receive contributions from a DAF.

Do your due diligence. Research minimum contributions and account balances, investment options, fee and payment schedules, access to professional expertise, and the ability to transfer your account before you choose your sponsoring organization. Philanthropic best practices should apply.

Talk with your financial advisor—they've been through this before. Of course, you should always meet with your advisor and discuss how any charitable contribution, through a DAF or otherwise, fits in with your overall financial plan before making any decision. With the expertise of Wealth Enhancement Group's Roundtable™ team of experts on your side, you can plan your charitable giving strategy with peace of mind.

Happy giving!

This is for information purposes only and is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.