Donor-Advised Funds for Charitable Giving: Take Another Look

With the expansion of the standard personal deduction and the related reduction in applicability of other itemized deductions from the 2017 Tax Cuts and Jobs Act (TCJA), many taxpayers are re-examining their charitable gifting strategies. Of course, for those with the means, the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 permits gifting up to 100% of adjusted gross income (AGI) to qualified charities. But looking ahead, those with ongoing commitments to charitable causes may be searching for new ways to maintain their support while also obtaining tax advantages.

One popular tool that is getting new attention, though it has been around for some time, is the donor-advised fund (DAF). Using DAFs, donors can allocate up to five years’ usual contributions in a single year, securing a personal deduction likely to rise above the amount available with the standard deduction. In turn, the DAF can direct annual gifts to charity, allowing the donors’ continued support of the causes that are most important to them. Indeed, Fidelity Charitable, a noted provider of DAF resources, indicated that grants to free-food programs through its DAF entity increased by nearly seven times in the period January–April 2020, compared with the same period in 2019. Clearly, donors are getting the message about the advantages and simplicity of using DAFS to extend their charitable efforts.

DAFs can accept cash, appreciated long-term investments such as stocks, bonds, and mutual funds, and even non-traded assets such as private business interests and real estate. The donor receives credit for the donation at the asset’s fair market value, and no capital gains are assessed. Further, the assets leave the donor’s estate at the time of the donation, making DAFs a useful estate planning tool. DAFs, as the name implies, will allow you to direct the timing and recipient for your gift, as long as the recipient is an IRS-approved charitable organization. Religious and educational organizations, homeless shelters, food banks, and a wide variety of other charitable entities can receive support from DAFs. As long as the funds remain within the DAF, they continue to grow tax-free, and the sponsoring entity maintains due diligence for all receiving organizations, ensuring that your gift is used for the purposes intended.

One of the best advantages of a DAF is that it doesn’t require as much of the usual apparatus associated with philanthropic initiatives, such as a trust. The donor makes the grant to the DAF, receiving a charitable deduction in return, and the DAF handles the rest according to the donor’s direction. Those considering the use of a DAF should, however, conduct some research beforehand to determine minimum gifts accepted, which specific charities the DAF can support, any fees involved, and any required schedules for disbursement from the DAF to a selected charity.

We specialize in assisting those with significant means who wish to make a real impact on society with their charitable giving. If we can answer any questions or provide advice, please contact us. To learn more about the tax laws and charitable giving, click here to read our article, “The New Tax Law, Charitable Giving, and Donor-Advised Funds.”

Buen Camino!

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Go to the Bernhardt Wealth Management Blog where this was first published to read this and other blog entries.

About Gordon J. Bernhardt: President and founder of Bernhardt Wealth Management and author of Profiles in Success: Inspiration from Executive Leaders in the Washington D.C. Area, Gordon and his team provide financial planning and wealth management services to affluent individuals, families and business-owners throughout the Washington, D.C. area. Since establishing his firm in 1994, he and his team have been focused on providing high-quality service and independent, unbiased financial advice to help clients make informed decisions about their money. For more information, visit Bernhardt Wealth Management and Profiles in Success.