Have you considered using a Donor-Advised Fund (DAF) as part of your charitable gifting strategy? A DAF is a charitable giving account that offers flexibility and tax planning opportunities, while maximizing your gift. You can contribute an array of assets and receive an immediate tax deduction. After funding the account, you can decide when and where these funds get distributed. In the meantime, your funds can be invested and grow tax-free, allowing for your generosity to have a greater impact.
Setting up a DAF is relatively simple and available through major custodians like Fidelity Charitable and Schwab Charitable. There are three parts of the giving cycle with a DAF:
- Contribute: Make an irrevocable donation to your DAF account. Contributions can include:
- Restricted stock
- Publicly traded securities or mutual fund shares
- Private equity and hedge fund interests
- Certain complex assets, such as privately held C Corp and S Corp shares
- Cash equivalents (checks, wire transfers, cash positions from a brokerage account)
- Bitcoin and other cryptocurrencies
- Invest: Once the account is funded, you can invest these assets, which will grow tax-free.
- Donate: Direct grants to your favorite charities whenever you’re ready.
A Donor-Advised Fund provides various tax benefits and financial planning opportunities. One key advantage is the immediate tax deduction you receive in the year you contributed, even if those funds are distributed a different year. While your contributions remain in the account, they can be invested and grow tax-free, increasing your charitable giving impact. DAFs also allow you to donate long-term appreciated assets, which could potentially eliminate related capital gains tax. Beyond tax advantages, DAFs support legacy planning by allowing you to name beneficiaries which ensure your charitable giving can continue across generations. This combination of tax efficiency, flexibility, and legacy planning makes DAFs a powerful tool for philanthropy and financial strategy.
When utilizing a DAF, there are important factors to consider. Contributions to a DAF are irrevocable; once you donate, the funds cannot be withdrawn for personal use. Additionally, DAFs can only provide funds to IRS-qualified charities. And, there may be certain fees associated with the account.
Despite some limitations and costs, donor-advised funds can be an extremely helpful tool in your charitable giving strategy, allowing you to focus on both tax planning and maximizing gifts to your favorite charities. FCA Corp has decades of experience helping clients with their charitable giving. If you’re considering opening or contributing to a DAF, contact FCA Corp to help evaluate your best option.
