DONOR ADVISED FUND: Defined

Posted on June 1, 2025 by Dr. David Edward Marcinko MBA MEd CMP™

WHAT IS A DONOR ADVISED FUND?

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A donor-advised fund is a private account created to manage and distribute charitable donations on behalf of an organization, family, or individual. Donor-advised funds can democratize philanthropy by aggregating the contributions of multiple donors, thus multiplying their impact on worthy causes. Donor-advised funds also have abundant tax advantages.

DONOR DEPENDENCY: https://medicalexecutivepost.com/2025/01/02/culture-donation-dependency/

Donor-advised funds have become increasingly popular, as they offer the donor greater ease of administration while still allowing them to maintain significant control over the placement and distribution of charitable gifts. But, unlike private foundations, donor-advised fund holders enjoy a federal income tax deduction of up to 60% of adjusted gross income (AGI) for cash contributions and up to 30% of AGI for the appreciated securities they donate. Donors to these funds can contribute cash, stock shares, and other assets. When they transfer assets such as limited-partnership interests, they can avoid capital gains taxes and receive immediate fair market value tax deductions.

MEDICAL ETHICS: https://medicalexecutivepost.com/2024/06/20/medical-ethics-physician-and-financial-organizations/

According to the National Philanthropic Trust’s 2023 Donor-Advised Fund Report, these funds have continued to grow in recent years, despite some headwinds including the Covid-19 pandemic and occasional stock market setbacks. Total grants awarded by donor-advised funds in 2022 increased by 9% to $52.16 billion, while total contributions rose by 9% to $85.5 billion.

Many donor-advised funds accept non-cash assets—such as checks, wire transfers, and cash positions from a brokerage account—in addition to cash and cash equivalents.

Donating non-cash assets may be more beneficial for individuals and businesses, leading to bigger tax bigger write-offs.

PHILANTHROPY: https://medicalexecutivepost.com/2021/11/15/national-philanthropy-day-2021/

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On Donor Advised Funds

Posted on July 11, 2024 by Dr. David Edward Marcinko MBA MEd CMP™

More on DAFs

By Rick Kahler CFP®

In A Christmas Carol, Charles Dickens has a scene where two charity workers raising funds for the poor approach Ebenezer Scrooge on Christmas Eve.

” What shall I put you down for?”
   “Nothing!” Scrooge replied.
   “You wish to be anonymous?”
   “I wish to be left alone,” said Scrooge.”

Scrooge may not be alone in his desire to be left alone. With 60% of Americans supporting presidential candidates’ proposals for wealth taxes, financial transaction taxes, higher capital gains tax rates, and increases in income taxes, many of our affluent neighbors are just not feeling the love this Christmas.

Nevertheless, there are still millions more who want to give. Charitable giving, though, can be more complicated than it was in Scrooge’s time. For example:

  • Are you bunching your itemized deductions into every other year and would like to give a substantial amount to charities this year, but you haven’t had time to research which charity you want to support or you want to spread the giving out over time as opposed to giving it all this month?
  • Do you support a number of charities and would like to support even more, but find the IRS requirements for documenting your gifts to be burdensome?
  • Would you like to set aside a sum of money for your favorite charities that could generate an annual income forever, but forming a foundation or charitable trust is beyond your reach?

All the above are possible with a donor-advised fund.

Let’s say you wanted to give small amounts to fifty different charities. Rather than write fifty checks and obtain fifty receipts, you can make one gift to the fund, which distributes the money to the fifty charities. You only have to provide one receipt to the IRS.

You can also make a charitable gift to the donor-advised fund that qualifies as a deduction on your 2019 tax return, but you can delay the distribution of the funds until sometime in the future. This gives you time to explore the various causes you may want to support.

What really sets a donor-advised fund apart from other types of charitable giving is that you can decide how your donations are used, much as you would if you set up your own foundation. You can even create either an endowed or a non-permanent fund for a particular purpose, such as a specifically-designated scholarship fund in memory of a loved one.

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Case Example:

One example of a donor-advised fund is the Black Hills Area Community Foundation. The BHACF supports scores of local charities and special projects. However, almost all financial institutions like Fidelity, TD Ameritrade, and Schwab have relationships with donor-advised funds.

While DAFs create an easy-to-establish, low-cost, flexible vehicle for charitable giving as an alternative to an expensive and complex private foundation, they are not hassle-free or without costs. Many charge a combination of fixed quarterly fees and an annual percentage of the undistributed funds. There is also a reasonable amount of administrative work involved. One DAF that I use assesses a penalty of $500 if the account is closed in under a year. They work best when a person anticipates significant contributions and a long-term giving plan.

Every donor-advised fund has different charities, minimums, processes, and costs, so it’s important to do your homework. Research whether the fund approves of the charities you want to support, as well as the costs involved.

Assessment

A donor advised fund may be a good way to take a large deduction this year, reduce the administrative hassles and costs of setting up a foundation, and still give to causes you choose to support.

Your thoughts are appreciated.

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Bundle Charitable Giving Through Donor Advised Funds

Posted on November 15, 2021 by Dr. David Edward Marcinko MBA MEd CMP™

Bundle Charitable Giving Through Donor Advised Funds

By Rick Kahler CFP®

With changes to standard and itemized deductions under the new tax law, many CPA’s and tax attorneys are recommending a strategy of bunching or bundling deductible spending into alternate years. I wrote about this approach a few weeks ago.

One way to bundle charitable deductions efficiently and effortlessly is through a Donor Advised Fund (DAF).

Here’s how it works

Suppose you budget $15,000 a year for charitable donations. Around half of this goes to local charities you support regularly. The rest you give in different ways, depending on the needs you become aware of throughout the year.

You could double your denotations to charities you support regularly and give directly to them every other year, but you would lessen your ability to give spontaneously. Giving through a DAF allows you to keep that spontaneity. A DAF allows you to make a large, tax-deductible gift in one year, but decide in the future (a day, ten years, or 100 years later) when and how to distribute that gift. The money stays with the DAF, which invests it, until you instruct the DAF to disburse the funds to the charity of your choice.

New tax laws

With the advent of the new tax law, DAFs have become all the rage in charitable giving. According to an article in Advisor Perspectives by Ken Nopar, the senior philanthropic advisor for the American Endowment Foundation, there are now 300,000 DAF accounts. This is twice the number eight years ago and nearly four times the number of private foundations. But all DAFs are not equal, so establishing one should be done only after some thorough investigation.

Some of the areas the article suggests that you explore with your financial planner or tax preparer are:

1. What is the appropriate amount to donate to a DAF account? Donate too much or too little, and you may not realize the maximum benefit from your gift. Be sure to check with your tax preparer.

2. With some DAF sponsors, it’s possible for your financial advisor to continue to manage your assets in well-diversified, low-cost investments. Otherwise, you may be forced to choose from a very limited number of funds with higher expenses—funds your advisor would be unlikely to recommend. Management by your advisor, in many cases, can produce greater returns, actually allowing you to donate more.

3. Investigate these things before choosing a DAF: The fees they charge, whether they appear to have enough staff and experience to administer the DAF properly, how promptly they send out grants, whether they can accept complex assets like appreciated real estate, and whether you could transfer the fund to another DAF sponsor if you should want to do so.

4. Also ask about limitations and requirements. Some DAFs may limit how much you can give each year to individual charities. Others require a certain percentage (sometimes 50% or more) to be donated to the DAF sponsor itself. A DAF’s rules may require the entire balance to be distributed to the DAF sponsor upon a donor’s death.

As Advisor Perspectives notes, many CPAs and attorneys are providing wise advice in recommending that clients establish DAF accounts. It would be a good idea to take that advice one step further and consult your financial advisor first. Otherwise you might end up with a DAF sponsor that may not be the best fit for your needs or those of the charities you support.

Assessment

As good as bundling donations to a DAF can be, don’t make a decision to use one based on the tax advantages alone. Just as with any investment, it’s important to do your research carefully before you write a check.

Conclusion

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